As filed with the Securities and Exchange Commission on June 24, 2003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
|
|
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
SCHEDULE 14A |
Proxy Statement Pursuant to Section 14(a) of |
the Securities Exchange Act of 1934 (Amendment No. ) |
|
|
Filed by the Registrant x |
|
Filed by a Party other than the Registrant o |
|
| |
Check the appropriate box: |
x | Preliminary Proxy Statement |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o | Definitive Proxy Statement |
o | Definitive Additional Materials |
o | Soliciting Material Pursuant to §240.14a-12 |
|
|
NorthWestern Corporation |
(Name of Registrant as Specified In Its Charter) |
|
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
|
| | | |
Payment of Filing Fee (Check the appropriate box): |
x | No fee required. |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| | |
| (2) | Aggregate number of securities to which transaction applies: |
| | |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| | |
| (4) | Proposed maximum aggregate value of transaction: |
| | |
| (5) | Total fee paid: |
| | |
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
| | |
| (2) | Form, Schedule or Registration Statement No.: |
| | |
| (3) | Filing Party: |
| | |
| (4) | Date Filed: |
| | |
| | |
|
| | |
|
|
| Preliminary 2016 Proxy Statement | |
|
|
|
| | |
|
| | |
| | |
| IMPORTANT VOTING INFORMATION If you owned shares of NorthWestern Corporation common stock at the close of business on February 22, 2016, you are entitled to one vote per share upon each matter presented at the annual meeting of stockholders to be held on April 20, 2016. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting. Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at this stockholders meeting, except on ratification of our appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2016, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your shares via telephone or the internet. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank, or other financial institution before the date of the annual meeting. YOUR VOTE IS IMPORTANT Your vote is important. Our Board strongly encourages you to exercise your right to vote. Voting early helps ensure that we receive a quorum of shares necessary to hold the annual meeting. ASSISTANCE If you have any questions about the proxy voting process, please contact the broker, bank, or other financial institution where you hold your shares. The Securities and Exchange Commission also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder. You also may contact our Investor Relations Department by phone at (605) 978-2945 or by email at investor.relations@northwestern.com. | |
| | |
| IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 20, 2016 The Notice of Annual Meeting, Proxy Statement, and 2015 Annual Report to Stockholders are available on the internet at www.proxyvote.com. | |
| | |
| ATTENDING THE ANNUAL MEETING IN PERSON OR BY WEBCAST Only stockholders of record or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. You may be asked to provide photo identification, such as a driver’s license. The annual meeting will be webcast (audio and slides) simultaneously with the meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 20, 2016. | |
|
| | | |
| | March 7, 2016
Notice of 2016 Annual Meeting and Proxy Statement
Dear Fellow NorthWestern Corporation Stockholder:
You are cordially invited to attend the 2016 Annual Meeting of Stockholders to be held on Wednesday, April 20, 2016, at 10:00 a.m. Mountain Daylight Time at the NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana.
At the meeting, stockholders will be asked to elect the Board of Directors, to ratify the appointment of our independent registered public accounting firm for 2016, to hold an advisory vote on the compensation of our named executive officers, to approve an amendment to our Certificate of Incorporation, and to transact any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. The proxy statement included with this letter provides you with information about the annual meeting and the business to be conducted. YOUR VOTE IS IMPORTANT. We urge you to read this proxy statement carefully. Whether or not you plan to attend the annual meeting in person, we urge you to vote promptly through the internet, by telephone or by mail. If you are unable to attend our annual meeting in person, we are pleased to offer an audio webcast of the meeting. The webcast can be accessed live on our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts, or you can listen to a replay of the webcast, which will be archived on our website at the above location for 30 days after the meeting.
Thank you for your continued support of NorthWestern Corporation. |
| | | Very truly yours, |
| | | |
| | | Robert C. Rowe President and Chief Executive Officer |
|
| | | | | |
| | | | |
| Table of Contents | Page | |
| Annual Meeting Notice ................................................................................................ | 1 |
| |
| Proxy Summary ............................................................................................................ | 2 |
| |
| | Items of Business to Be Considered at the Annual Meeting | 2 |
| |
| | 2015 Executive Compensation Overview | 2 |
| |
| | 2015 Corporate Governance Overview | 3 |
| |
| Proposals Requiring Your Vote ................................................................................... | 4 |
| |
| | Proposal 1 – Election of Directors | 4 |
| |
| | Proposal 2 – Ratification of Independent Registered Public Accounting Firm | 6 |
| |
| | Proposal 3 – Advisory Vote to Approve Named Executive Officer Compensation | 8 |
| |
| | Proposal 4 – Amend Certificate of Incorporation | 11 |
| |
| Compensation Discussion and Analysis ................................................................... | 13 |
| |
| | Compensation Discussion and Analysis Table of Contents | 13 |
| |
| | Executive Summary | 14 |
| |
| | Pay for Performance | 18 |
| |
| | Say-on-Pay Results | 21 |
| |
| | Governance of Our Executive Compensation Program | 21 |
| |
| | Targeted Overall Compensation and Competitive Analysis | 22 |
| |
| | Components of Executive Compensation for 2015 | 26 |
| |
| | Other Compensation Policies | 35 |
| |
| Compensation Committee Report .............................................................................. | 36 |
| |
| Compensation of Executive Officers and Directors ................................................. | 37 |
| |
| | 2015 Summary Compensation Table | 37 |
| |
| | 2015 Grants of Plan-Based Awards | 38 |
| |
| | 2015 Stock Vested | 39 |
| |
| | Outstanding Equity Awards at 2015 Fiscal Year-End | 40 |
| |
| | Post-Employment Compensation | 41 |
| |
| | 2015 Director Compensation | 45 |
| |
| | Director Stock Ownership | 46 |
| |
| Stock Ownership Information ..................................................................................... | 47 |
| |
| | Security Ownership of Directors and Management | 47 |
| |
| | Section 16(a) Beneficial Ownership Reporting Compliance | 47 |
| |
| | Security Ownership of Certain Beneficial Holders | 48 |
| |
| Other Matters ................................................................................................................ | 49 |
| |
| | Securities Authorized for Issuance Under Equity Compensation Plans | 49 |
| |
| Corporate Governance ................................................................................................ | 50 |
| |
| | Board of Directors | 51 |
| |
| | Individual Directors | 52 |
| |
| | Independent Board Chair | 55 |
| |
| | Determination of Independence and Family Relationships | 55 |
| |
| | Committees of the Board | 56 |
| |
| | Code of Conduct | 58 |
| |
| | Risk Oversight of the Company | 58 |
| |
| | Transactions with Related Persons | 59 |
| |
| | Hedging and Pledging Our Securities | 59 |
| |
| | Political Contributions Policy | 59 |
| |
| | Communications with Our Board | 59 |
| |
| Audit Committee Report .............................................................................................. | 60 |
| |
| Voting Procedures ....................................................................................................... | 60 |
| |
| | Appointment of Proxy Holders | 60 |
| |
| | Record Date and Voting | 60 |
| |
| | Quorum | 61 |
| |
| | Broker Non-Votes | 61 |
| |
| | Required Vote and Method of Counting | 62 |
| |
| | Method and Cost of Soliciting and Tabulating Votes | 62 |
| |
| | Electronic Access to Proxy Statement and Annual Report | 63 |
| |
| General Information ..................................................................................................... | 63 |
| |
| | Attending the Annual Meeting in Person or by Webcast | 63 |
| |
| | Householding; Receipt of Multiple Notices | 63 |
| |
| | Available Information | 64 |
| |
| | Future Stockholder Proposals | 64 |
| |
| | Assistance | 65 |
| |
| Proxy Statement Glossary (inside back cover) | | |
| | | | |
Notice of the
Securities Exchange Act of 1934
Filed by the Registrant ( X )
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NORTHWESTERN CORPORATION
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i) and O-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration State No.:
3) Filing Party:
4) Date Filed:
NORTHWESTERN CORPORATION
Corporate Office
125 S. Dakota Ave.
Sioux Falls, South Dakota 57104 2016 Annual Meeting of Stockholders
August 26, 2003
July ___, 2003
Dear Stockholder:
You
|
| |
Meeting Date: | April 20, 2016 |
Meeting Time: | 10:00 a.m. Mountain Daylight Time |
Location: | NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana |
Record Date: | February 22, 2016 |
Purposes of the Annual Meeting:
| |
● | Election of seven individuals to serve as members of our Board of Directors for a one-year term. Each of the individuals nominated for election currently serves on our Board. |
| |
● | Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2016. |
| |
● | Advisory vote on the compensation for our named executive officers. |
| |
● | Approval of an amendment to the director removal provision of our Certificate of Incorporation. |
| |
● | Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. |
Stockholders, or their legal proxy holders, owning NorthWestern Corporation common stock at the close of business on February 22, 2016, the record date, are entitled to vote at the annual meeting.
Only our stockholders, their legal proxy holders as of the record date, or our invited toguests may attend the Annual Meeting of Stockholders of
NorthWestern Corporation (the "Company," "we" or "our"), whichannual meeting in person. The annual meeting will be held atwebcast (audio and slides) simultaneously with the Sioux Falls Convention Center, 1201 N. West Ave.meeting.
On or about March 7, 2016, Sioux Falls, South Dakota,
on Wednesday, August 26, 2003, at 2:00 p.m. (Central Daylight Time).
This iswe mailed to our stockholders either (1) a very important annual meeting. The Company's financial
condition has deteriorated, primarily as a resultNotice of substantial operating
losses inInternet Availability of Proxy Materials, which indicates how to access our non-energy subsidiaries and the substantial amount of debtproxy materials on the Company's balance sheet. In order to address the Company's financial problems,
we have developedinternet, or (2) a turnaround plan, the key elements of which are to: (i) focus
on our core electric and natural gas utility businesses;, (ii) substantially
reduce debt by applying net proceeds from the sale of non-core assets and other
means; (iii) reduce operating costs; and (iv) improve internal financial
controls and procedures. Commencing in 2005, we face substantial debt reduction
payments. Absent the receipt of significant proceeds from the sale of non-core
assets, the raising of additional capital or a restructuringcopy of our debt, we
will not have the ability to reduce our debt or meet our maturing debt
obligations. Even if we are successful in selling some or all of our non-core
assets, we will have to restructure our debt or seek new capital. Asproxy statement, a result of
the Company's current financial condition, the Board of Directors reluctantly
determined it necessary to suspend the dividend on common stock and defer
interest payments on the Company's publicly traded trust preferred securities.
The ability to substantially reduce our debt is the key to the success
of our turnaround plan. In addition to the sale of non-core assets and other
steps we have taken and will take to improve operating performance and preserve
cash, the Board believes that reduction of debt will likely require the issuance
of additional equity securities, either to raise cash or to exchange for the
retirement of outstanding debt. The Company's current Restated Certificate of
Incorporation provides for the issuance of only approximately 11.3 million
additional shares of common stock, together with 1 million shares of preferred
stock and 1 million shares of preference stock, which the Board believes is not
an adequate number of authorized shares to effectuate the turnaround plan.
The Board is asking that stockholders approve, at this annual meeting,
a significant increase in the number of shares of authorized common stock, a
significant increase in the number of shares of preferred stock and a
significant amendment of preferred stock terms, together with other changes to
the Restated Certificate of Incorporation, in order to provide NorthWestern with
greater flexibility in pursuing its turnaround plan. The Board believes that,
unless a new Amended and Restated Certificate of Incorporation is adopted, the
Company will not be able to effectuate its turnaround plan. If the Company is
unable to effectuate its turnaround plan, it will be required to pursue
alternate means of resolving its financial problems, which could include seeking
protection under the Bankruptcy Code.
At the meeting you will also be asked to consider and vote upon
proposals to: (1) elect three Directors in Class III to the Board of Directors
of the Corporation; (2) ratify the selection by the Board of Directors of
Deloitte & Touche LLP as the Company's independent auditors for the year ending
December 31, 2003; and (3) transact such other business as properly may be
brought before the Company's annual meeting and any adjournment or postponement
thereof.
We discuss the matters to be acted upon at the meeting in more detail
in the attached Notice of Annual Meeting and Proxy Statement. Your Board of
Directors recommends that you vote "FOR" all of these important proposals.
You can vote in any one of three ways. You can vote online at our Web
site, by calling a toll-free telephone number, or by signing and returning the
enclosed proxy card, in the postage prepaid envelope provided. Instructions for
voting by each of these methods are set forth on the proxy card.
We hope that you can attend theand our 2015 Annual Meeting. The admission ticket
enclosed with this Proxy Statement will be required for admission, and you will
be required to present photo identification to gain admission to the Annual
Meeting. Whether or not you plan to attend, you can be sure that your shares are
represented at the meeting by promptly voting by one of the three methods
provided. Any stockholder attending the Annual Meeting may vote in person, even
if that stockholder has returned a proxy. Your vote is important, whether you
own a few shares or many.
Thank you for your continued support of NorthWestern Corporation.
Very truly yours,
Gary G. Drook
Chief Executive Officer
This document is dated July __, 2003 and is being first mailed to
stockholders of NorthWestern on or about July __, 2003.
NORTHWESTERN CORPORATION
Corporate Office
125 S. Dakota Ave.
Sioux Falls, South Dakota 57104
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 2003
July ___, 2003
To the Holders of Common Stock of
NORTHWESTERN CORPORATION:
NOTICE IS HEREBY given that the 2003 Annual Meeting of Stockholders
(the "Annual Meeting") of NorthWestern Corporation (the "Company") will be held
at the Sioux Falls Convention Center, 1211 N. West Ave., Sioux Falls, South
Dakota, on Wednesday, August 26, 2003, at 2:00 p.m. (Central Daylight Time) for
the following purposes:
1) To approve amendments to and a restatement of the Company's Restated
Certificate of Incorporation in the form attached as Exhibit A to
the Proxy Statement, to effect the following,
a. increase the authorized number of shares of common stock from
50 million shares to 250 million shares and reduce the par
value of the common stock from $1.75 per share to $.001 per
share;
b. cancel the authorization for, and eliminate the designation of
rights, preferences and privileges of, 1 million shares of
Cumulative Preferred Stock and 1 million shares of Preference
Stock, since all of such shares have been redeemed or
repurchased by the Company and cancelled, and authorize 50
million shares of new preferred stock with rights, preferences
and privileges to be set by the Board of Directors prior to
issuance;
c. generally update the current Restated Certificate of
Incorporation to reflect current Delaware law and bring this
important document in line with those of the Company's peer
public companies; and
d. file a revised restated certificate of incorporation with the
Delaware Secretary of State reflecting the new amendments in a
single document; and
2) To elect three members of Class IIIReport. By Order of the Board of Directors,
to
hold office until the Annual Meeting of Stockholders in 2006, and
until their successors are duly elected and qualified;
3) To ratify the selection by the Board of Directors of Deloitte &
Touche LLP as the Company's independent auditors for the year ending
December 31, 2003;
4) To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 27, 2003
as the record date for determining the stockholders entitled to receive notice
of, and to vote at, the Annual Meeting and any adjournments thereof. A complete
list of such stockholders will be available at the Company's executive offices
at 125 S. Dakota Ave., Sioux Falls, South Dakota 57104, for ten days before the
Annual Meeting.
Your Board of Directors recommends that you vote "FOR" adoption of the
amendments to and restatement of the Restated Certificate of Incorporation,
"FOR" the nominees for the Board and "FOR" ratification of Deloitte & Touche LLP
as the Company's auditors.
You are encouraged to vote in any one of the three ways available:
online at the Company's Web site, by calling the toll-free telephone number, or
by signing, dating and returning your proxy card in the enclosed envelope.
Instructions for voting by each of these methods are set forth on the proxy
card. If you are able to attend the Annual Meeting and wish to vote in person,
you may do so whether or not you have returned your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Alan D. Dietrich
Timothy P. Olson
Corporate Secretary
YOUR VOTE IS IMPORTANT, WHETHER YOU OWN A FEW SHARES OR MANY.
NORTHWESTERN CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To be held August 26, 2003
TABLE OF CONTENTS
Page
-----------------------------------------------------------------------------------------------------------------
Information Concerning Solicitation of Proxies and Voting............................................................1
Proposal 1: Amendment and Restatement of the Certificate of Incorporation ..........................................3
Proposal 2: Election of Directors............................................................................ 12
Proposal 3: Ratification of Independent Auditor ....................................................................14
Meetings of the Board of Directors & Committees.....................................................................15
Executive Officers..................................................................................................17
Security Ownership by Certain Beneficial Owners and Management......................................................18
Compensation of Directors & Executive Officers......................................................................19
Summary Compensation Table.................................................................................20
Information on Options.....................................................................................21
Employment Contracts.......................................................................................21
Retirement Plan............................................................................................23
Director Compensation......................................................................................24
Audit Committee Report..............................................................................................28
Section 16(a) Beneficial Ownership Reporting Compliance.............................................................29
Certain Relationships and Related Transactions......................................................................29
Performance Graph...................................................................................................29
Exhibit A - Proposed Restated Certificate of Incorporation..........................................................37
|
| |
| |
NORTHWESTERN CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To be held August 26, 2003
INFORMATION CONCERNING SOLICITATION OF PROXIES AND VOTING
General
This2016 Proxy Statement is furnished in connection with
March 7, 2016
This proxy statement contains information related to the solicitation of proxies by the Board of Directors (the Board) of NorthWestern Corporation d/b/a NorthWestern Energy (NorthWestern, the Company (the "Board")company, we, us, or our) in connection with our 2016 Annual Meeting of Stockholders. See the Proxy Statement Glossary on the inside back cover for useadditional definitions used in this proxy statement.
Proxy Summary
Items of Business to Be Considered at the Annual Meeting
Our Board asks you to vote on the following items at the annual meeting: |
| |
Œ | Election of seven individuals to serve as members of our Board for a one-year term. Each of the individuals nominated for election currently are serving on our Board, and each previously were elected by at least 99.6% of votes cast in 2015. |
| Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2016. |
Ž | Advisory vote on the compensation for our named executive officers. Our 2015 executive compensation program maintained the compensation structure previously approved by 99.4% of votes cast in 2015, while increasing “at risk” pay for executives to enhance pay for performance alignment. |
| Approval of the amendment of the director removal provision of our Certificate of Incorporation. If approved, the amendment would permit removal of directors with or without cause by a majority of shares outstanding and entitled to vote. |
| Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. |
Immediately following this Proxy Summary, the “Proposals Requiring Your Vote” section of Stockholdersthis proxy statement provides additional details concerning the first four items of business.
2015 Executive Compensation Overview
Alignment of Compensation with Stockholder and Customer Interests
Our executive compensation program is designed to align the long-term interests of our executives, stockholders, and customers. About 74 percent of the Company (the "Annual Meeting") to be held
on Wednesday, August 26, 2003,compensation of our chief executive officer, or at any adjournmentCEO, and about 57 percent of the Annual Meeting, for
the purposes set forth herein andcompensation of our other named executive officers is at risk in the foregoing Noticeform of Annual Meetingperformance-based incentive awards. These awards use Board-established metrics that, according to our independent compensation consultant, are generally more difficult to achieve than the companies in the peer group we have utilized for executive compensation purposes. We also require our executives to retain meaningful ownership of Stockholders. The Annual Meeting will be held atour stock. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives. For the Sioux Falls Convention
Center, 1211 N. West Ave., Sioux Falls, South Dakota. Copies of this Proxy
Statement and the Company's Annual Report will be furnished to brokerage houses,
fiduciaries and custodians to forward to beneficial owners of common stock of
the Company held in their names. The Company's Annual Report, which includes
information from its Form 10-K for the yearthree-year period ended December 31, 2002, as filed2015, we provided a return to our stockholders higher than any of those same peer companies; during 2015, we provided an above average return relative to these peers. Our CEO to median employee pay ratio for 2015 was 19:1.
Shareholder Feedback on Compensation
At our 2015 annual meeting, our compensation program was approved by 99.4 percent of votes cast. In light of the overwhelming approval from our stockholders, we have not changed the overall structure of our executive compensation program for 2015. We continue to use the same compensation components and operate within the parameters previously approved by our stockholders.
Executive Compensation Components at a Glance
|
| | | | |
| | Percent of Total Compensation | |
Component | Description | CEO | Other NEO Avg. | Changes for 2015 |
Base Salary Fixed, paid in cash | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | 26% | 43% | Executives received cost of living adjustment provided to all employees; five executives received additional increases to remain market competitive |
Annual Cash Incentive Variable, paid in cash | Based on net income, safety, reliability, and customer satisfaction metrics and individual performance | 21% | 18% | No change for 2015 |
Long-Term Incentive Program Awards Variable, paid in equity | Based on EPS, ROAE, and TSR performance over three-year vesting period | 40% | 30% | Increased target opportunity for two executives to align with market median |
Executive Retention / Retirement Program Awards Variable, paid in equity | Based on net income performance over a five-year vesting period; paid over five-year period following separation from service | 13% | 9% | No change for 2015 |
Performance Against Targets
|
| | | | | | |
2015 Annual Cash Incentive Outcome* | | 2013 Long-Term Incentive Program Vesting |
Financial (55%) – % of Target Achieved | 99.6 | % | | ROAE / Avg. Net Inc. Growth – % of Target Achieved | 154.5 | % |
Safety** (15%) – % of Target Achieved | 125.0 | % | | Relative TSR – % of Target Achieved | 180.0 | % |
Reliability (15%) – % of Target Achieved | 64.7 | % | | Total Payout to Participants* | 167.3 | % |
Customer Sat. (15%) – % of Target Achieved | 106.7 | % | | | |
Total Funding for Executives | 80 | % | | * Each component weighted 50% for total payout | |
* Also subject to individual performance multiplier ** Safety component forfeited due to employee fatality | | | |
2015 Corporate Governance Overview
As previously announced, one of our Board members, Denton Louis Peoples, will be retiring at the end of his current annual term. We will be reducing the size of our Board to seven members effective upon his retirement. The seven nominees for director currently serve on our Board and were elected in 2015 by at least 99.6 percent of the votes cast. Each of our Board members is independent, with the Securitiessole exception of our CEO. Our Board is led by an independent chair, and Exchange Commission, was provided on April 30, 2003our three Board committees – Audit; Human Resources; and Governance and Innovation – are chaired by and composed entirely of independent directors.
We made no material changes to our corporate governance practices for 2015. We are proposing an amendment to our Certificate of Incorporation which, if approved by stockholders, would permit the removal of record as of March 10, 2003. A copy of the Annual Report is
being provideddirectors, with this Proxy Statement to stockholders of record as of June
27, 2003 that were not provided with a copy on April 30, 2003. Your attention is
directed to the financial statements and Management's Discussion and Analysis in
such Annual Report, which provide additional important information concerning
NorthWestern.
Record Date; Outstanding Securities
The voting securities of the Company entitled to vote at the Annual
Meeting consist only of shares of common stock. Only stockholders of record at
the close of business on June 27, 2003 (the "Record Date") are entitled to
notice of and to vote at the Annual Meeting. As of the Record Date, there were
37,680,095 shares of NorthWestern's common stock, par value $1.75 per share,
issued and outstanding.
Revocability of Proxies
A stockholder who signs and returns a proxy will have the power to
revoke it at any time before it is voted. A proxy may be revoked by: (i) filing
with the Company (Attention: Alan D. Dietrich, Corporate Secretary) a written
revocation; (ii) submitting a duly executed proxy bearing a later date; or (iii)without cause, by appearing at the Annual Meeting and electing to vote in person.
Voting
Each stockholder is entitled to one vote for each share of common stock
held.
Solicitation of Proxies
This solicitation of proxies is made by the Company and all related
costs, including expenses in connection with preparing and mailing this proxy,
will be borne by the Company. In addition, the Company will reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's Directors, officers and
regular employees, without additional compensation, in person or by telephone,
facsimile or e-mail.
The Company has retained Georgeson Stockholder Communications Inc. to
assist it in the solicitation of proxies. The Company has agreed to pay
customary fees charged by Georgeson Stockholder Communications Inc. for its
services in soliciting proxies, which are estimated to be [$6,500], and has
agreed to reimburse Georgeson Stockholder Communications Inc. for reasonable
out-of-pocket expenses for these services. Also, NorthWestern will reimburse,
upon request, brokers or other persons holding stock in their names or in the
names of their nominees for reasonable expenses in forwarding proxies and proxy
material to the beneficial owners of stock.
1
Quorums; Abstentions; Broker Non-Votes
The Company's Bylaws provide that a majority of the shares outstanding and entitled to vote. Currently, our Certificate of Incorporation provides that the removal of directors is permitted only for cause by a supermajority (two-thirds) vote. If the proposed amendment is approved, our Board intends to adopt a conforming change to our bylaws.
Proposals Requiring Your Vote
At the annual meeting, our Board will present and ask you to vote on four proposals: the election of seven directors, the ratification of the appointment of our independent registered public accounting firm, an advisory vote on executive compensation, and the amendment of our Certificate of Incorporation. These four proposals are discussed individually in more detail on the following pages of this proxy statement.
|
|
The Board of Directors recommends a vote “FOR” Proposals 1, 2, 3, and 4. |
When voting by internet or telephone, you will be instructed how to cast your vote for or against or to abstain from voting on these proposals. If you received a printed copy of your proxy materials, space is provided on the proxy card to vote for or against or abstain from voting on each of the proposals.
Proposal 1
Election of Directors
|
| | |
| | Our Board is nominating seven individuals for election as directors at the annual meeting. All nominees are currently serving as directors of the company. In accordance with our certificate of incorporation and our bylaws, all members of our Board are elected annually, to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. Our bylaws currently authorize a Board consisting of not fewer than five nor more than 11 persons. We currently have eight seats on our Board. However, as previously announced, one of our current directors, Denton Louis Peoples, will be retiring as of the Annual Meeting. Effective as of that date, the Board will reduce the number of directors to seven. If any director is not elected or is unable to complete his or her term, the Board, by resolution, may further reduce the number of directors or choose a substitute to fill the vacant position. |
The nominees for election to the seven positions on our Board, selected by our Governance and Innovation Committee, or Governance Committee, and proposed by our Board to be voted upon at the annual meeting, are:
Biographical information and the individual qualifications of each nominee are described beginning on page 52 of this proxy statement.
Our goal is to maintain a diverse Board that operates cohesively and challenges management in a constructive way. The Governance Committee has not established specific minimum qualifications for director nominees or set forth specific qualities or skills that the committee believes are necessary for one or more directors to
|
|
Proposal 1 — Election of Directors |
possess. Instead, in considering director candidates, the Governance Committee considers the diversity of our Board and takes into account whether the Board as a whole has the skills, experience, and background that add to and complement the range of skills, experience, and background of each director, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence, financial literacy, race, and gender. With the exception of the company’s CEO, all of our directors are independent, as required by our Corporate Governance Guidelines. Our Board also determined that no family relationships exist with any current directors, executive officers or newly-nominated directors, except that current directors Dana Dykhouse and Jan Horsfall are first cousins.
When nominating persons to serve on our Board, the Governance Committee considers individuals who can add value to the strategic policymaking and oversight responsibilities of the Board and provide skills and personal experiences that add to and complement the skills, experience, and background of the Board as a whole and are needed to achieve the company’s corporate objectives. A director’s ability to contribute to the Board, the time he or she has available and his or her participation on other boards also are considered because we believe these are important factors that enhance the quality of the Board’s decision-making, its oversight of management, and our business overall. The Governance Committee believes that our incumbent Board members collectively possess the experience, skills, and attributes necessary to lead the company to a long and successful future.
Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote “FOR” the election of director nominees Adik, Bradley, Draper, Dykhouse, Horsfall, Johnson, and Rowe to hold office as directors until the next annual meeting of stockholders in 2017 and until their successors are duly elected and qualified. All nominees have advised the Board that they are able and willing to serve as directors.
If any nominee becomes unavailable for any reason (which is not anticipated), the shares represented by the proxies may be voted for such other person or persons as may be determined by the holders of the proxies (unless a proxy contains instructions to the contrary). In no event will the proxy be voted for more than seven nominees.
Directors will be elected by a favorable vote of a plurality of the shares of the
commonvoting stock present and entitled to vote, whether present in person or by proxy, shall
constitute a quorumat the annual meeting. You may vote “FOR” all of the nominees or you may “WITHHOLD AUTHORITY” for one or more of the nominees. Withheld votes will not count as votes cast for the transaction of business at the Annual Meeting. If a
quorum is not present or represented, then either the chairman of the Annual
Meeting or the stockholders entitled to vote at the Annual Meeting, present in
person or represented by proxy, will have the power to adjourn the Annual
Meeting from time to time, without notice other than an announcement at the
Annual Meeting, until a quorum is present. At any adjourned Annual Meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the Annual Meeting as originally noticed. If the adjournment is
for more than 30 days, or if after that adjournment a new record date is fixed
for the adjourned Annual Meeting, a notice of the adjourned Annual Meeting shall
be given to each stockholder of record entitled to vote at the adjourned Annual
Meeting.
All shares represented by valid proxies received prior to the Annual
Meeting will be voted and, where a stockholder specifies by means of the proxy a
choice with respect to any matter to be acted upon, the shares will be voted in
accordance with the specification so made.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Inspector of Elections (the "Inspector") who will be an
employee of the Company or of the Company's transfer agent. The Inspector will
also determine whether or not a quorum is present. Other than for the election
of Directors, the affirmative vote of a majority of shares present in person or
represented by proxy at a duly held Annual Meeting at which a quorum is present
is required for approval of each of the matters to be acted on at the Annual
Meeting. For the election of Directors, the three nominees receiving the highest
number of votes "FOR" will be elected as Directors. This number is called a
plurality.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN"
as being present and entitled to vote for purposes of determining the presence
of a quorum, but such shares will neither be counted as votes for, nor the
withholding of authority for, the election of directors,nominee, but will have the
effect of a vote against all other matters submitted to a vote of stockholders.
When proxies are properly dated, executed and returned, the shares represented
by such proxies will be voted at the Annual Meeting in accordance with the
instructions of the stockholder. If no specific instructions are given, the
shares will be voted: (i) FOR the proposed amendments to the Company's
certificate of incorporation; (ii) FOR the election of the three nominees for
Directors set forth herein; and (iii) FOR the ratification of the selection by
the Board of Deloitte & Touche LLP as the Company's independent auditors for the
year ending December 31, 2003. The form of proxy also confers discretionary
authority with respect to any other business properly brought before the
Meeting.
Shares held by nominees for beneficial owners will be countedcount for purposes of determining whether a quorum is present ifpresent. Stockholders do not have the nominee hasright to cumulate their vote for directors. Abstentions or broker non-votes as to the discretion to vote on at least oneelection of directors will not affect the election of the matters presented atcandidates receiving a plurality of votes; however, under our Majority Plus Resignation Vote Policy described below, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his or her resignation under the 2003 annual
meeting, even ifprocedures in the nominee may not exercise discretionary voting power with
respect to other matters and voting instructions have not been received from the
beneficial owner (a "broker non-vote"). Broker non-votes will not be counted as
votes for, nor the withholding of authoritypolicy.
Director Resignation Vote Policy
The Board has in place a Majority Plus Resignation Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of “WITHHOLD AUTHORITY” votes from his or her election than votes “FOR” such election (or a Majority Withheld Vote) shall promptly tender his or her resignation following certification of the stockholder vote.
Under this policy, the Governance Committee shall promptly consider the resignation offer and a range of possible responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board. The Board will act on the Governance Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose its decision-making process and decision regarding whether to accept the director’s resignation offer (or the reason(s) for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K furnished to the SEC.
Any director who tenders his or her resignation pursuant to this policy shall not participate in the Governance Committee’s recommendation or Board action regarding whether to accept the resignation offer.
|
|
Proposal 1 — Election of Directors |
However, if each member of the Governance Committee receives a Majority Withheld Vote at the same election, then the independent directors (Proposal Two)who did not receive a Majority Withheld Vote shall appoint a committee among themselves to consider the resignation offers and recommend to the Board whether to accept them. If the only directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignation offers, with each director recusing himself or herself from consideration of his or her resignation offer.
The Board of Directors recommends a vote “FOR” the election of each of our director nominees.
Proposal 2
Ratification of Independent Registered Public Accounting Firm
|
| | |
| | Our Audit Committee has appointed Deloitte & Touche LLP (Deloitte) as our independent registered public accounting firm to audit our financial statements for the year ending December 31, 2016, and recommends that stockholders vote for ratification of such appointment. Although action by the stockholders is not required by law, the Audit Committee and the Board have determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the appointment, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the company and its stockholders. The Audit Committee is not required to take any action as a result of the outcome of the vote on this matter. However, in the event of a negative vote on ratification, the Audit Committee will reconsider its appointment. |
Representatives of Deloitte will be present at the annual meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions. The table below presents a summary of the fees billed to us by Deloitte for professional services for the fiscal years ended December 31, 2014 and 2015.
|
| | | | | |
Fee Category | Fiscal 2014 Fees ($) | | Fiscal 2015 Fees ($) |
Audit fees | 1,322,600 |
| | 1,285,875 |
|
Audit-related fees | — |
| | — |
|
Tax fees | 367,325 |
| | 168,628 |
|
All other fees | — |
| | — |
|
Total fees | 1,689,925 |
| | 1,454,503 |
|
Audit Fees
Audit fees consist of fees billed for professional services rendered for the audit of our financial statements, internal control over financial reporting, review of the interim financial statements included in quarterly reports, services in connection with debt and equity securities offerings, and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements. For 2015, butthis amount includes estimated billings for the completion of the 2015 audit, which Deloitte rendered after year-end.
Audit-related Fees
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” There were no audit-related fees in fiscal 2014and 2015.
|
|
Proposal 2 — Ratification of Independent Registered Public Accounting Firm |
Tax Fees
Tax fees consist of fees billed for tax compliance, tax advice and tax planning.
All Other Fees
All other fees consist of fees for products and services other than the services reported above. In fiscal years 2014and 2015, there were no other fees.
Pre-approval Policies and Procedures
Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services. Our Audit Committee follows procedures pursuant to which audit, audit-related, and tax services and all permissible non-audit services, are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent public accountants for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent public accountants. The procedures require the Audit Committee to be informed of each service, and the procedures do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Pursuant to the provisions of the Audit Committee Charter, before Deloitte is engaged to render audit or non-audit services, the Audit Committee must pre-approve such engagement. For 2015, the Audit Committee (or the Chair of the Audit Committee pursuant to delegated authority) pre-approved 100 percent of the tax fees.
Leased Employees
In connection with their audit of our 2015 annual financial statements, more than 50 percent of Deloitte’s work was performed by full-time, permanent employees of Deloitte.
The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to ratify the appointment of Deloitte. Brokers may vote a client’s proxy in their own discretion on this proposal. Abstentions will have the same effect ofas a vote against all other matters
submittedthe proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern Corporation for the fiscal year ending December 31, 2016.
The Board of Directors recommends a vote “FOR” the ratification of stockholders. The Company believesDeloitte & Touche LLP as our independent registered public accounting firm.
|
|
Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation |
Proposal 3
Advisory Vote to Approve Named Executive Officer Compensation
|
| | |
| | The company is providing stockholders an opportunity to provide an advisory vote to approve named executive officer compensation (or a say-on-pay vote), as required by Section 14A of the Exchange Act. Through the say-on-pay vote, we are asking you to support the compensation of our named executive officers as we have described it in this proxy statement. We hold advisory votes on executive compensation every year. Our Board decided on annual votes after most of our stockholders voted for that preference in 2011. We will continue to hold annual advisory votes on executive compensation until our next vote on the frequency of stockholder votes on executive compensation, which will occur at our 2017 annual meeting. |
At our annual meeting in 2015, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the tabulation
procedure to be followed by the Inspector is permitted by the general statutory
requirements in Delaware concerning votingcompensation of shares and determination of a
quorum.
Submission of Stockholder Proposals for 2004 Annual Meeting
Stockholders who intend to submit a proposal for inclusionour named executive officers, as disclosed in the Company's proxy materials for the 2004 Annual Meeting of stockholders must
submit the proposals, together with any supporting statements, to the Corporate
Secretary of NorthWestern in order to be eligible for inclusion in the
NorthWestern proxy materialsstatement for that meeting. Stockholders who intendOur say-on-pay resolution and the 2014 compensation of our named executive officers was approved by 99.4 percent of the shares present and entitled to present avote on the matter.
Your say-on-pay vote will provide insight and guidance to us and our Board regarding your sentiment about our executive compensation philosophy, policies and practices. While the say-on-pay vote is advisory and not binding on our company, we and our Board will consider the guidance received by the vote when determining executive compensation for the remainder of 2016 and beyond. For the reasons summarized below, we ask that you support our executive compensation and vote in favor of the say-on-pay proposal at the 2004 Annual Meeting are requiredoutlined below.
We consider our executive compensation programs to
provide notice of
such proposal to the Corporate Secretary no later than February 5, 2004. A
stockholder presenting a proposal must appearbe instrumental in
person or through a qualified
representative at the 2004 Annual Meeting to present the proposal. The Company
reserves the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with thesehelping us achieve strong financial performance and other
applicable requirements.
2
PROPOSAL ONE:
AMENDMENT AND RESTATEMENT OF THE RESTATED CERTIFICATE OF INCORPORATION
BACKGROUNDkey non-financial objectives, such as safety, reliability, and customer satisfaction. Our programs are designed to attract, motivate, and retain a highly qualified executive team that is able to achieve corporate objectives and create long-term stockholder value. Our Human Resources Committee, or HR Committee, and our Board believe the company’s overall executive compensation program is structured to reflect a strong pay-for-performance philosophy and aligns the long-term interests of our executives and our stockholders. The Company's financial condition has deteriorated, primarily as a
result“Compensation Discussion and Analysis,” or CD&A, section, starting on page 13 of substantial operating losses in our non-energy subsidiariesthis proxy statement, and the substantial amount“Compensation of debtExecutive Officers and Directors” section, starting on the Company's balance sheet. In orderpage 37, provide more detailed discussions of our specific executive compensation programs. Our compensation programs are substantially tied to address
the Company's financial problems, the Boardour key business objectives and management of the Company have
developed a turnaround plan, the key elements of which are to: (i) focus on the
Company's core electric and natural gas utility businesses; (ii) substantially
reduce debt by applying net proceeds from the sale of non-core assets or new
securities, exchanging new securities for existing securities and other means;
(iii) reduce operating costs; and (iv) improve internal financial controls and
procedures. Commencing in 2005, the Company faces substantial debt reduction
payments. Absent the receipt of significant proceeds from the sale of non-core
assets, the raising of additional capital or a restructuring of debt, the
Company will not have the ability to reduce its debt or meet its maturing debt
obligations. Even if the Company is successful in selling some or all of its
non-core assets, the Company will have to restructure its debt or seek new
capital. As a result of the Company's current financial condition, the Board of
Directors determined it necessary to eliminate the dividend on common stock and
defer interest payments on the Company's publicly traded trust preferred
securities.
The ability to substantially reduce debt is the key to the success of our stockholders. As described in the Company's turnaround plan. In addition“Compensation Discussion and Analysis” section, one component of our compensation philosophy is that a significant portion of our executives’ compensation should be at-risk in the form of incentive awards that are paid, if earned, based on individual and company performance. Our short-term and long-term incentive programs demonstrate this philosophy. More than half (55 percent) of the weighting of the potential annual incentive payment an executive may earn is tied to the salecompany’s success in achieving a net income target established by our HR Committee and approved by our Board. The remainder of non-core assets and
other steps the Company has taken and will takepotential annual incentive payment is focused on achieving excellence in operations. With respect to improve operating performance
and preserve cash, the Board believes that reduction of debt will likely require
the issuance of additional equity securities, either to raise cash or in
exchange for the retirement of outstanding debt. The Company's current Restated
Certificate of Incorporation provides for the issuance of only approximately
11.3 million additional shares of common stock, together with 1 million shares
of preferred stock and 1 million shares of preference stock, which the Board
believes is not an adequate number of authorized shares to effectuate the
turnaround plan.
The Board is asking that stockholders approve, at this annual meeting,
a significant increase inour long-term incentive program, the number of shares actually earned pursuant to long-term incentive awards is based on ROAE, earnings per share growth (prior to 2014 our long-term incentive programs used net income growth instead of authorized common stock, a
significant increase in the number of shares of preferred stockearnings per share growth) and a
significant amendment of preferred stock terms, together with other changesTSR relative to the Restated Certificate of Incorporation, in order to provide NorthWestern with
greater flexibility in pursuing its turnaround plan. The Board believes that,
unless a new Amended and Restated Certificate of Incorporation is adopted, the
Company will not be able to effectuate its turnaround plan.peer group we utilize for executive compensation purposes. If the Company is
unablevalue we deliver to effectuate its turnaround plan, it will be requiredour stockholders declines, so, too, does the compensation we deliver to pursue
alternate meansour executives.
In addition, we have designed the framework of resolving its financial problems, which could include seeking
protection under the Bankruptcy Code.
The Company's Turnaround Plan
On February 19, 2003, NorthWestern announced the key elements of a
turnaround plan intended to strengthen the Company's balance sheetour short-term and position
it for improved financial performance. The turnaround plan includes the return
of the Company's focus to its core electric and natural gas utility business and
exploration of the sale or other strategic options for its unregulated
businesses, Expanets (a provider of networked communications solutions) and Blue
Dot (a heating, ventilation and air conditioning business). The Company's
primary goal in its turnaround initiative is the substantial reduction of debt.
The Company has incurred a significant amount of debt as a result of the
investments it made in Expanets, Blue Dot, and CornerStone (a propane
distribution company) and its purchase of the electric and natural gas
transmission and distribution business formerly owned by The Montana Power
Company. At March 31, 2003, the Company had a common stockholders' deficit of
$446.4 million and currently has approximately $2.2 billion in debt and trust
preferred instruments outstanding. The performance of Expanets and Blue Dot has
not met the Company's expectations. It has become increasingly apparent that
NorthWestern will never recover its investments in these entities.
Commencing in 2005, the Company faces substantial debt reduction
payments. The Company believes that it will not have the ability to materially
reduce its debt or meet significant maturing debt obligations unless it receives
substantial proceeds from the sale of non-core assets. The Company is currently
investigating the sale of certain of its non-core assets, including Expanets,
Blue Dot, the Montana First Megawatts generation project, and One-Call Locators,
and is seeking to enforce an existing contract to sell certain Colstrip
transmission assets to a third party. However, no definitive agreements or
arrangements have been entered into to sell any such assets exceptlong-term incentive programs for the Colstrip transmission business. The Company faces material challengeslong haul. Our Board established the framework for our short-term incentive program in selling
its non-energy businesses, which have historically not been cash flow
contributors2005. Since establishment, the primary revisions to the organization. Expanets faces challengesprogram have been with respect to among other things, economic conditionsannual targets, generally, to require improvement on a year-over-year basis. Our Board established a long-term incentive plan in 2005, our Equity Compensation Plan. In 2009, our Board granted the first of annual, performance-based awards to the
|
|
Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation |
company’s senior employees whose work directly affects our financial results and incorporated performance-based metrics over a three-year period with cliff vesting at the end of that period. The first payouts under such awards occurred in early 2012. In addition, payout of our executive retention / retirement program restricted share units are conditioned on the company’s financial performance over a five-year period with cliff vesting at the end of such period and, if earned, are paid out over a five-year period after the executive’s separation from service with the company.
We believe this framework has contributed greatly to aligning the interests of our stockholders and executives. As illustrated by the following graphics, relative to the companies in the telecommunications marketpeer group we have utilized for executive compensation purposes, we are providing strong financial results. According to SNL financial and problems with its Expert system, an enterprise information technologyassuming reinvestment of dividends, we have the highest TSR of any of those peer companies over the past three years and management system. Blue Dota TSR better than the average of those peer companies in 2015. Meanwhile, based on proxy statement disclosures of those companies, our CEO pay has defaulted on certain of its obligations under
its credit facilitybeen below average, ranking tenth highest over the past one- and faces material liquidity issues. Blue Dot also faces
challenges
3
related to retention of its employees, including key managers, customersthree-year periods for which proxy compensation data is available. The CD&A contains additional details concerning our performance and suppliers. In addition, the Company does not intend to make additional
significant investments in Blue Dot or Expanets while strategic alternatives for
these businesses are explored. The challenges faced by Expanets and Blue Dot
present a substantial risk of serious disruptioncompensation relative to these businesses and may
materially and adversely affect their value. The Company cannot predict whether
or when such assets may be sold, or if it can obtain a favorable price or other
termspeer companies as depicted in any such sale.
Potential Issuancethe graphics below. |
| |
3-YEAR |
10th Highest CEO Pay | Highest TSR |
of 15 Peers | of 15 Peers |
| |
| |
1-YEAR |
10th Highest CEO Pay | 7th Highest TSR |
of 15 Peers | of 15 Peers |
| |
Another component of Additional Equity Securities
Even ifour compensation philosophy is to target compensation around the Company is successful in selling some or all of its
non-core assets, the Company will have to restructure its debt or seek new
capital. In lightmiddle of the substantial difficultycompetitive total compensation range, while also considering various factors, including trade area economics, turn-over, tenure, experience and other factors. Our HR Committee closely monitors the Company will facecompensation programs and pay levels of executives from similar companies as to size and complexity with the assistance of an independent compensation consultant, Willis Towers Watson.
|
|
Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation |
Our compensation philosophy also is reflected in selling
its non-core assetswhat we don’t do:
| |
● | We do not make multi-year guarantees for salary increases to our named executive officers. |
| |
● | We do not have perquisites for current, former, and/or retired executives that differ materially from those available to employees generally. |
| |
● | We do not have any change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the Equity Compensation Plan and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control. |
| |
● | We do not have employment or golden parachute agreements with any of our executive officers. |
| |
● | We do not have a non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retention / retirement program. |
| |
● | We do not provide tax gross-ups to our named executive officers. |
| |
● | We do not pay dividends or dividend equivalents on unvested performance shares or units. |
| |
● | We do not allow our executives to hedge or pledge company securities. |
Finally, we believe our compensation philosophy is reflected in the high level of corporate governance we maintain over our executive compensation programs. Our HR Committee consists entirely of independent members. Moreover, our HR Committee, our CEO, and our executive in charge of human resources engage in an annual talent review process to address succession and executive development for our CEO and other key executives. Our HR Committee also conducts an annual performance assessment of our CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance.
We believe that the summary information we have provided with this proposal and the absence of any foreseeable improvementmore detailed descriptions provided elsewhere in the
operating results of the Company's non-energy businesses, the Board believes
that the Company will have to (1) issue new equity securities in exchange for
the retirement of outstanding debt or (2) issue additional equity securities for
cash that can be used to retire debt. The Company currently has approximately
11.3 million shares of common stock available for issuance, other than upon
exercise or conversion of currently outstanding securities. The Board believes
that the Company currently has an insufficient number of shares of common stock
authorized to effectuate its turnaround plan. The Company has 1 million shares
of preferred stock and 1 million shares of preference stock authorized for
issuance, but the rights, preferences and privileges of such shares are fixed in
the Restated Certificate of Incorporation and may not be changed by the Board
without stockholder approval. The Board believes that the Company cannot issue
its current authorized preferred stock or preference stock in connection with
its turnaround plan because there are an insufficient number of shares available
and many of the material terms, which are fixed, do not reflect current market
conditions and expectations. The Board has adopted a proposal to amend and
restate the Restated Certificate of Incorporation in the form attached to this
Proxy Statement as Exhibit A in order to help facilitate the turnaround plan and
the continued growth of the Company and to reflect developments in Delaware
general corporation law since the date of adoption of the current Restated
Certificate of Incorporation.
The Board believes that the Company will not be able to effectuate its
turnaround plan if this proposal is rejected by the stockholders. If the Company
fails to execute its turnaround plan and reduce its debt, the Company will
forced to pursue alternate means of resolving its financial problems, which
could include seeking to reorganize or liquidate under the U.S. Bankruptcy Code.
If that were to occur it is possible that your equity interest in NorthWestern
would be eliminated, and you would lose your entire investment in the Company.
If the stockholders approve the Amended and Restated Certificate of
Incorporation, and the Company issues additional equity securities in exchange
for debt or to fund the payment of debt, stockholders will experience
substantial dilution. No agreements or arrangements with creditors, investors or
underwriters have been made for the issuance of securities or retirement of
debt.
The Terms of the Proposed Amended and Restated Certificate
For your reference, a copy of the proposed Amended and Restated
Certificate of Incorporation is attached to this proxy statement as Exhibit A.
In summary,demonstrate that we and our HR Committee have designed our executive compensation programs appropriately to align the proposed restatement would effect the following:
(1) Increase the authorized numberlong-term interests of sharesmanagement and stockholders.
For all of
common stock from 50
million shares to 250 million sharesthese reasons, including what we do and
reduce the par valuedon’t do, your vote in support of the
common
stock from $1.75 per share to $.001 per share. The Company currently has only
approximately 11.3 million authorized, unreserved sharescompensation of
common stock
available for issuance. Additional shares will be needed to raise additional
funds or to exchange for debt in connection with the turnaround plan. Additional
shares of common stock could be issued in one or more public or private
offerings. Reduction of the par value will give the Company more flexibility in
setting the price at which such shares may be issued and will reduce filing and
other costs.
(2) Eliminate the existing Cumulative Preferred Stock and Preference
Stock and Authorize 50 million shares of new preferred stock. All of the
Company's previously outstanding shares of Cumulative Preferred Stock have been
redeemed or repurchased by the Company and cancelled, and no Preference Stock
shares have been issued. The Restated Certificate of Incorporation sets many of
the material terms of such stock, which cannot be amended without stockholder
approval. The Board does not anticipate issuing additional shares of the 1
million authorized shares of Preferred Stock and 1 million authorized shares of
Preference Stock and proposes to cancel the authorization for, and eliminate the
designation of rights, preferences and privileges of, such shares. The Board
seeks, instead, authorization for 50 million shares of preferred stock with
terms that can be set by the Board prior to issuance. The availability of new
shares of preferred stock, with rights, preferences and privileges to be set by
the Board prior to issuance, together with the authorization of additional
shares of common stock, will provide the Company with more flexibility in
negotiating and structuring potential transactions in furtherance of its
turnaround plan. Preferred stock could be issued for cash as a means of
obtaining capital or in exchange for debt.
4
(3) Generally update the current Restated Certificate of
Incorporation. The current Restated Certificate of Incorporation includes
several provisions that do not reflect current Delaware law or are either
outdated or improper for a public company. The Board seeks to update this
important document and bring it in line with those of the Company's peer public
companies. The proposed changes would:
(a) permit the Board to increase or decrease the size of the
Board;
(b) provide that directors to be elected by holders of preferred
stock in accordance with the rights, preferences and privileges of such shares,
if any, shall not be divided into classes;
(c) amend the capital stock authorization provisions to allow the
number of shares of authorized capital stock to be increased or decreased by a
majority vote of stockholders, rather than by separate class vote;
(d) amend or eliminate provisions that have been superseded by
current Delaware corporation law or are no longer appropriate under current
Delaware corporation law regarding (A) the purposes of the Company, (B) the lack
of preemptive rights, (C) perpetual existence of the Company, (D) private
property of stockholders, (E) the description of the business and affairs of the
Board, (F) the terms of directors, (G) removal of directors by the Board, (H)
location of books and records, (I) participation of interested directors in
contracts or transactions with the Company, (J) no written action by
stockholders, (K) reorganizations, (L) business combinations involving
interested stockholders, and (M) procedures for amendment of the Certificate of
Incorporation;
(e) modernize the provisions regarding the indemnification and
other rights and duties of NorthWestern'sour named executive officers and directors as permitted by
Delaware corporation law; and
(f) amend or eliminate provisions that are more appropriately
included in the Company's Bylaws regarding stockholder voting, meeting and
notice provisions and procedures and the number of directors.
(4) Restate the Restated Certificate of Incorporation by
incorporating the new amendments into a single document.
These proposed changes are discussed in further detail below.
NorthWestern's original Certificate of Incorporation was filed with the Delaware
Secretary of State on November 27, 1923 under the name NorthWestern Public
Service Company. NorthWestern previously restated its Certificate of
Incorporation on February 12, 1990, and November 1, 2000. The current Restated
Certificate of Incorporation was filed on November 9, 2000.
INCREASE IN THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK; REDUCTION OF THE
PAR VALUE OF SHARES OF COMMON STOCK
Number of Shares Currently Authorized and Available for Issuance
The authorized number of shares of common stock is currently 50 million
shares, approximately 37.7 million of which were issued and outstanding as of
the Record Date. In addition, approximately 2.3 million shares are reserved for
issuance upon exercise of options, warrants, rights and the conversion of
convertible securities. As of such date, the Company has only approximately 11.3
million shares of common stock available for issuance for other purposes.requested. Accordingly, the Board recommends that stockholders approve our executive compensation program by voting “FOR” the authorized numberfollowing advisory resolution: RESOLVED, that the compensation paid to the company’s named executive officers (as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in the company’s 2016 proxy statement) is hereby APPROVED.
This advisory vote to approve named executive officer compensation is not binding on the company. However, we and our Board will take into account the result of the vote when determining future executive compensation arrangements.
The affirmative vote of the holders of a majority in voting power of the shares of our common stock be increased from 50 million shareswhich are present in person or represented by proxy and entitled to 250 million shares. The number of
authorized shares of common stockvote thereon is required to approve the say-on-pay resolution set forth above. If your shares are held through a broker, bank, or other nominee and you do not vote your shares, your bank, broker, or other nominee may not vote your shares in Article 4 ofthis proposal. Assuming a quorum is present, broker non-votes or the proposed
Amended and Restated Certificate of Incorporation.
Uses of Newly Authorized Shares
If approvedfailure to vote – either by the stockholders of the Company, such additional
authorized shares would be available for future issuance for various corporate
purposesnot returning a properly executed proxy card or not voting in person at the discretion of the Board and without further authorization by the
stockholders (subject to the requirements of applicable law or the listing
requirements of the New York Stock Exchange). The increase in authorized shares
of common stock is recommended by the Board in order to provide a sufficient
reserve of such shares for issuance in (a) public or private offerings as a
means of obtaining additional capital to retire debt or (b) public or private
exchange offers for debt or other securities of the Company, in each case in
connection with the Company's turnaround plan. The reserve of common stock could
also be used for the following purposes, without limitation: (i) as part or all
of the consideration required to be paid for the acquisition of ongoing
businesses or other
5
assets; (ii) in public or private offerings as a means of obtaining additional
capital to strengthen the Company and expand its core utility business; (iii) in
connection with the exercise of options, warrants, rights, or the conversion of
convertible securities of the Company; (iv) in connection with stock splits and
dividends; or (v) with respect to existing or new benefit or option plans or
agreements.
Effects of Authorization of New Shares
If the stockholders approve the proposal to increase the number of
authorized shares of capital stock, the additional authorized shares will be
part of the existing classes of capital stock and will increase the number of
shares of capital stock available for issuance by the Company, butannual meeting – will have no effect uponon the termsoutcome of the voting on this proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to approve, on an advisory basis, the compensation of the company’s named executive officers, as set forth in the company’s 2016 proxy statement. The Board of Directors recommends a vote “FOR” adoption of the resolution approving, on an advisory basis, the compensation of the company’s named executive officers, as described in this proxy statement.
|
|
Proposal 4 — Approve Amendment of Certificate of Incorporation |
Proposal 4
Approve Amendment of Certificate of Incorporation
|
| | |
| | The Board proposes to amend Section 5.3 of our Amended and Restated Certificate of Incorporation, or Certificate of Incorporation, which governs the removal of directors. Currently, such section requires that directors may only be removed for cause and only upon a supermajority vote of two-thirds of all stockholders. The Board is recommending that stockholders approve an amendment to such provision to eliminate the “for cause” removal restriction and to change the supermajority vote requirement to a simple majority. If the proposed amendment to the Certificate of Incorporation is approved by stockholders, the Board will adopt conforming amendments to our Bylaws. |
Rationale for the Amendment
On December 21, 2015, the Delaware Chancery Court issued an opinion in In re VAALCO Energy, Inc. Stockholder Litigation, Consol. C.A. No. 11775-VCL, invalidating as a matter of law provisions of the certificate of incorporation and bylaws of VAALCO Energy, Inc., a Delaware corporation, which permitted the removal of VAALCO’s directors by its stockholders only for cause. The Chancery Court held that, in the absence of a classified board or cumulative voting, VAALCO’s “only-for-cause” director removal provisions conflict with Section 141(k) of the Delaware General Corporation Law and are therefore invalid.
Article 5, Section 5.3 of our Certificate of Incorporation contains similar “only-for-cause” director removal provisions, and we do not have a classified board of directors or cumulative voting. In light of the VAALCO decision, our Board considered this provision and a similar provision in Section 3.6 of our Bylaws and concluded that the “only-for-cause” restriction with respect to removal of directors should be eliminated.
The Board also considered the supermajority approval requirement in Section 5.3 of our Certificate of Incorporation and Section 3.6 of our Bylaws. The Board considered the advantages of maintaining supermajority approval in light of our current circumstances, including that the supermajority requirement promotes Board continuity and stability. The Board also understands that the supermajority requirement provides protection against certain abusive takeover tactics and more time to solicit higher bids in a hostile takeover situation because it is more difficult to change a majority of directors on the board prior to the end of their annual terms.
While the Board continues to believe that these are important considerations, the Board also considered the potential advantages of removing supermajority approval in light of our current circumstances, including that our Board is unclassified and that our directors serve annual terms at the pleasure of stockholders. In other words, our stockholders already evaluate directors on an annual basis.
After carefully weighing all of these considerations, the Board approved the proposed amendment to the Certificate of Incorporation, the text of which is provided below, and a recommendation that stockholders adopt this amendment by voting in favor of this proposal. The Board also approved a conforming amendment to our Bylaws, and the Company previously announced it would not attempt to enforce the “only-for-cause” director removal provisions in the Certificate of Incorporation or Bylaws.
Proposed Amendment
If the proposed amendment to the Certificate of Incorporation is approved, Section 5.3 of the Certificate of Incorporation, and only Section 5.3, would be amended to remove the “only-for-cause” restriction on removal of directors and to replace such section’s supermajority approval requirement with a majority approval requirement. All other sections of the Certificate of Incorporation would be maintained in their current form.
|
|
Proposal 4 — Approve Amendment of Certificate of Incorporation |
With respect to the proposed modifications to Section 5.3 of the Certificate of Incorporation, if stockholders approve this proposal, Section 5.3 would be revised as follows (new language is indicated by underlined text; language to be deleted is indicated by strikethrough):
Section 5.3 Removal of Directors. Except for directors elected by a series of Preferred Stock then outstanding, common stockany Director or the entire Board of Directors may be removed, but only forwith or without cause, and only by the affirmative vote of the holders of a majorityat least sixty six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation then entitled to vote at an election of Directors, voting together as a single class. Nothing in this Section 5.3 shall be deemed to affect any rights of the holders of such shares. If and when issued, the proposed additional authorized
shares of common stock will have the same rights and privileges as the shares of
common stock currently outstanding.
If the Company issues additional equity securities, whether in exchange
for debt or to fund the payment of debt or for other purposes, stockholders will
experience dilution, which dilution may be material, depending on the number of
shares issued and the purpose, terms and conditions of the issuance. The
issuance of additional shares of common stock may also have a dilutive effect on
earnings per share of common stock and on the equity and voting rights of
holders of shares of common stock as described above. No agreements or
arrangements with creditors, investors or underwriters have been made for the
issuance of securities or retirement of debt.
However, the Board believes that the Company will not be able to
effectuate its turnaround plan if this proposal is rejected by the stockholders,
and if the Company fails to execute its turnaround plan and reduce its debt, the
Company will be forced to pursue alternate means of resolving its financial
problems, which could include seeking to reorganize or liquidate under the U.S.
Bankruptcy Code. If that were to occur it is possible that your equity interest
in NorthWestern would be eliminated and you would lose your entire investment in
the Company.
Holders of shares of common stock do not have preemptive rights to
subscribe to additional securities that may be issued by the Company, which
means that current stockholders do not have a prior right to purchase any new
issue of capital stock of the Company in order to maintain their proportionate
ownership. However, stockholders wishing to maintain their interest may be able
to do so through normal market purchases.
Change in Par Value
"Par value" is a dollar value assigned to shares of stock, which is the
minimum amount for which each share may be sold. Historically, the par value of
shares had many accounting and tax effects, but it has very limited significance
under current Delaware corporation law. There is no minimum or maximum value
that must be assigned under Delaware corporation law, and the Board believes
that current practice of public companies and NorthWestern's peer companies is
to have shares with no or nominal par value. The Fourth Article of the current
Restated Certificate of Incorporation sets the par value of the common stock at
$1.75 per share. The Board has determined that such par value may restrict the
Board's ability to issue shares or options to purchase shares. The Board
recommends that the par value per share of common stock be reduced to $.001 to
allow the Board greater flexibility in setting the consideration that may be
paid for shares of common stock or securities exercisable for or convertible
into shares of common stock. In addition, reducing the par value will result in
reduced filing fees and other costs. Reducing the par value of the common stock
is not related to and should have no effect on the market price of such shares.
The proposed par value of the common stock is set forth in Article 4 of the
proposed Amended and Restated Certificate of Incorporation.
ELIMINATION OF EXISTING CUMULATIVE PREFERRED STOCK AND PREFERENCE STOCK
PROVISIONS AND AUTHORIZATION OF 50 MILLION SHARES OF NEW PREFERRED STOCK
Elimination of Cumulative Preferred Stock and Preference Stock
NorthWestern currently has no shares outstanding of either its
currently authorized 1 million shares of Cumulative Preferred Stock or 1 million
shares of Preference Stock. The Board does not believe that the rights and
preferences set forth in the current Restated
6
Certificate of Incorporation for the Cumulative Preferred Stock or Preference
Stock reflect current market conditions or expectations. Therefore, the Board
does not anticipate issuing any additional shares of Cumulative Preferred Stock
or Preference Stock in connection with the turnaround plan.
Description of New Preferred Stock
The Board recommends that the Restated Certificate of Incorporation be
amended to authorize 50 million shares of new preferred stock and that the
provisions of the current Restated Certificate of Incorporation authorizing 1
million shares of Cumulative Preferred Stock and 1 million shares of Preference
Stock and setting forth the rights and preferences of such stock be eliminated.
Any additional preferred shares will be issued pursuant to the new preferred
stock authorizing provisions proposed herein, if approved by the stockholders,
under terms and conditions that the Board deems appropriate on the date of
issuance. The authorization of such preferred stock would permit the Company's
Board to authorize and issue preferred stock from time to time in one or more
series. Subject to limitations prescribed by law, the proposed amendments to and
restatement of the Restated Certificate of Incorporation would expressly
authorize the Board, at its discretion, to adopt resolutions to issue shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers (including the power to
elect one or more directors), designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether the dividends
are cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any series of the preferred stock, in each case withoutPreferred Stock to remove Directors pursuant to any further action or vote by the stockholders. The Board would be required to
make any determination to issue shares of preferred stock based on its judgment
as to the best interestsapplicable provision of the Company's stockholders.
UsesCertificate of New Preferred Stock
TheIncorporation. If the proposed amendment to
create and authorize 50 million shares of new
preferred stock will provide the
Company with more flexibility in its efforts to
reduce debt in connection with its turnaround plan. The terms of the new
preferred stock will be set by the Board when negotiating and structuring
transactions with potential investors or debt holders to issue preferred stock
for cash that may be used to retire debt or exchange preferred stock for
outstanding debt, respectively. The new preferred stock will also be available
for issuance from time to time and with such features as determined by the Board
for any proper corporate purpose, which may include issuing preferred stock for
cash as a means of obtaining capital for use by the Company for general
corporate purposes, or as part or all of the consideration that the Company may
be required to pay for acquisitions of other businesses or assets. In any event,
if the new preferred stock is approved, stockholders will not, except as may be
required by Delaware corporation law or the rules and regulations of the New
York Stock Exchange, have the opportunity to approve the Board's designation of
preferences and/or issuance of preferred stock either before or after its
designation and/or issuance. At this time, however, the Board has no specific
plan to issue shares of preferred stock to any particular person or for any
particular purpose other than in connection with the reduction of debt in
accordance with the turnaround plan. The number of authorized shares of
preferred stock is set forth in Article 4 of the proposed Amended and Restated
Certificate of Incorporation.
Effects of Authorization of New Preferred Stock
Any issuance of preferred stock with voting rights could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company by increasing the number of outstanding shares entitled to vote and
by increasing the number of votes required to approve a change in control.
Shares of voting or convertible preferred stock could be issued, such as
pursuant to a stockholders' rights plan, or rights to purchase such shares could
be issued, to render more difficult or discourage an attempt to obtain control
of the Company by means of a tender offer, proxy contest, merger or otherwise.
The ability of the Board to issue such additional shares of preferred stock,
with the rights and preferences it deems advisable, could discourage an attempt
by a party to acquire control of the Company by tender offer or other means.
Such issuances could therefore deprive stockholders of benefits that could
result from such an attempt, such as the realization of a premium over the
market price. Moreover, the issuance of such additional shares of preferred
stock to persons friendly to the Board could make it more difficult to remove
incumbent management and directors from office even if such change were to be
favorable to stockholders generally.
While the amendment may have anti-takeover ramifications, the Board
believes that the financial flexibility offered by the amendment outweighs any
disadvantages. To the extent that the amendment may have anti-takeover effects,
it may encourage persons seeking to acquire the Company to negotiate directly
with the Board, thus enabling the Board to consider the proposed transaction in
a manner that best serves the interest of stockholders. The Board is also
recommending changing the current Restated Certificate of Incorporation to
eliminate the restrictions contained therein relating to interested stockholder
transactions. However, the restrictions on such transactions under Delaware
corporate law will still apply.
7
The proposed Restated Certificate of Incorporation also provides that
if the preferred stockholders have a separate voting right to elect directors,
such directors will not be classified unless expressly provided. Regardless of
whether such directors, if any, are classified, they would be entitled to
participate in all actions of Board and would be entitled to serve until their
successors are duly elected and qualified in accordance with the terms of the
preferred stock, as may be adopted by the Board, and the Bylaws of the Company.
GENERAL UPDATING OF THE RESTATED CERTIFICATE OF INCORPORATION AND REMOVAL OR
AMENDMENT OF INAPPROPRIATE AND UNNECESSARY PROVISIONS
Several provisions of the current Restated Certificate of Incorporation
are now outdated or inapplicable to the Company's current business and
capitalization or current Delaware corporation law. The Board recommends that
the Restated Certificate of Incorporation be amended and restated to amend or
remove the following inapplicable or inappropriate provisions:
Authorization of the Board to Increase or Decrease the Size of the Board of
Directors; Elimination of Specific Number of Directors in the Restated
Certificate of Incorporation
The Seventh Article of the current Restated Certificate of
Incorporation sets the number of directors of the Company between nine and
twelve. The Company's Bylaws similarly provide that the size of the Board shall
be no less than nine and no greater than twelve and may be fixed by the Board
from time to time. The Board believes that it is in the Company's best interests
to include the number of directors in the Bylaws, which may be amended by the
Board or a majority of the stockholders, rather than in the Restated Certificate
of Incorporation, which may only be amended by action of a majority of the
stockholders. Article 5 of the proposed Amended and Restated Certificate of
Incorporation provides the Company with greater ease in decreasing or expanding
the size of its Board and is permitted by Delaware corporation law.
Amendment of the Authorized Capital Stock Provision
The Board recommends that Article 4 of the Restated Certificate of
Incorporation specifically provide that the authorized number of shares of
common stock or preferred stock may be increased or decreased by a majority vote
of NorthWestern's stockholders. Without such a provision, under Delaware
corporation law the holders of the class of stock to be increased or decreased
would have a separate class vote. The Board has determined that a separate class
vote is not in the best interests of the stockholders of the Company and was not
intended but is a result of the application of current Delaware law.
Update of Director Indemnification and Limitation of Liability Provisions
The Company's Bylaws require the Company to indemnify its directors and
officers to the maximum extent permitted by law. The Board believes that most
corporations and virtually all public corporations have mandated in their
charters, rather than, or in addition to, their bylaws, the extension of
indemnification rights in circumstances in which indemnification would be
permissible under Delaware corporation law, and that the failure to consistently
provide such indemnification rights will make it difficult to attract and retain
qualified directors. The indemnification rights set forth in the Company's
Bylaws are not also set forth in the Company's Restated Certificate of
Incorporation as is typical with most other public companies, and accordingly,
the Board believes it appropriate to include indemnification rights in the
Restated Certificate of Incorporation. Article 7 of the proposed Amended and
Restated Certificate of Incorporation sets forth detailed provisions regarding
indemnification of NorthWestern's officers and directors, all in accordance with
Delaware corporation law, including provisions requiring the Company to
indemnify directors and officers, permitting the Company to indemnify employees
and agents, for any proceedings arising out of such person being a director,
officer, employee or agent of the Company or serving in a similar capacity with
another entity at the request of the Company, and requiring the advancement of
expenses of directors and officers involved in any such proceedings upon receipt
of an undertaking to repay such advances if it is later determined such person
was not entitled to such advances. Article 7 of the proposed Amended and
Restated Certificate of Incorporation permits the Company to purchase insurance
for directors, officers, employees and agents and further provides that: (A) any
repeal of the applicable sections of the Restated Certificate of Incorporation
or applicable provisions of Delaware corporation law will not affect the rights
of indemnities existing at a particular time; (B) the indemnification and
prepayment of expenses rights are not exclusive; and (C) such rights survive
such person no longer being a director, officer, employee or agent. These
provisions are substantially similar to the provisions currently in the
Company's Bylaws, although the Company has sought to modernize these provisions
to be consistent with the indemnification rights extended to officers and
directors of other public companies.
The Eleventh Article of the current Restated Certificate of
Incorporation provides that directors would not be liable for breach of their
fiduciary duty except in certain enumerated circumstances, which are duplicative
of Delaware corporation law. The Board believes that Delaware corporation law
provides adequate protection and guidance with respect to limitation of
liability for directors and that most public companies as well as many of the
Company's peer companies do not expressly set forth such limitation, or the
exceptions therefore, in their charter documents, but rely instead on the
provisions of Delaware corporation law. Article 7 of the proposed Amended and
Restated Certificate of Incorporation provides for limitation of director
liability in accordance with Delaware law "as the same exists or may hereafter
be amended."
8
Amendment of Lawful Purposes Provision
The Third Article of the current Restated Certificate of Incorporation
includes an extensive list of corporate purposes, many of which are inconsistent
with the Company's operations or plans. The detailed list is unnecessary and
limits NorthWestern's business to only those enumerated purposes. Delaware
corporation law does not require corporations to list their specific purposes
and permits corporations to define their business or purpose in terms of "any
lawful act or activity." Article 3 of the proposed Amended and Restated
Certificate of Incorporation eliminates the detailed list of corporate purposes
and allows "any lawful act or activity" instead.
Elimination of Unnecessary Preemptive Rights Provision
The Fourth Article of the current Restated Certificate of Incorporation
includes a provision that stockholders do not have preemptive rights. Delaware
corporation law provides that stockholders do not have preemptive rights unless
expressly granted in the certificate of incorporation. Therefore, the current
provision is unnecessary, and the Board recommends that it be eliminated.
Elimination of Issuance of Capital Stock and Acceptance of Terms Provisions
The Fourth Article of the current Restated Certificate of Incorporation
includes provisions that the Company may issue stock without stockholder
approval for the consideration determined by the Board, and that stockholders
are deemed to consent to the terms and provisions of the Restated Certificate of
Incorporation by accepting shares of stock. Under Delaware corporation law, the
Company may issue authorized stock for the consideration determined by the
Board, and stockholders will only receive the rights and privileges attached to
their stock as set forth in the then current Restated Certificate of
Incorporation. Therefore, these provisions are unnecessary and the Board
recommends that they be eliminated.
Elimination of Perpetual Existence Provision
The Fifth Article of the current Restated Certificate of Incorporation
includes a provision that the Company shall have perpetual existence. Delaware
corporation law provides that a Delaware corporation has perpetual existence
unless otherwise specified in the certificate of incorporation. Therefore, the
current provision is unnecessary, and the Board recommends that it be
eliminated.
Elimination of Private Stockholder Property Provision
The Sixth Article of the current Restated Certificate of Incorporation
includes a provision that private property of the stockholders is not available
to satisfy the Company's debts. Delaware corporation law provides that creditors
may not recover the Corporation's debts from the stockholders (except as
otherwise provided by law). Therefore, the current provision is unnecessary, and
the Board recommends that it be eliminated.
Elimination of Business and Affairs and Board Powers Provisions
The Seventh Article of the current Restated Certificate of
Incorporation includes provisions that confer various specific powers on the
Board to manage the business and affairs of the Company. Also, the current
Restated Certificate of Incorporation includes provisions that the stockholders
have the right to inspect the books and records of the Corporation. Delaware
corporation law already specifically addresses these issues, so the powers
included in the current Restated Certificate of Incorporation are unnecessary.
The Board recommends that these unnecessary provisions be eliminated.
Elimination of Dates for Terms of Office of Directors; Disqualification for
Ceasing to be an Executive Officer Added
The Seventh Article of the current Restated Certificate of
Incorporation includes a provision setting forth the specific dates of the terms
of office of directors. Those terms of office have expired, and the provision is
no longer relevant. Article 5 of the proposed Amended and Restated Certificate
of Incorporation includes the relevant provisions that the directors are divided
into three classes (with the exception of any director elected by the holders of
preferred stock, if any), which shall be as equal in number as possible, and
that each director shall serve for three years, which are
9
unchanged from the current Restated Certificate of Incorporation. In addition,
the proposed Amended and Restated Certificate of Incorporation includes
provisions that any Director who is an executive officer of the Corporation
would immediately cease to be a Director upon ceasing to be an executive
officer.
Elimination of Removal of Directors By Directors Provision
The Seventh Article of the current Restated Certificate of
Incorporation includes a provision that a director cannot be removed except for
cause with the approval of a majority of the directors or a majority of the
stockholders. Delaware corporation law provides that a majority of stockholders
may remove directors with or without cause, unless the board is classified in
which case they may only remove directors for cause (unless the certificate of
incorporation provides otherwise). Removal of a director by the Board is not
permitted under Delaware corporation law. NorthWestern has a classified Board.
Article 5 of the proposed Amended and Restated Certificate of Incorporation
retains the provision that the stockholders may remove directors only for cause
and eliminates the provisions allowing removal by the Board.
Elimination of Location of Books and Records, Locations of Meetings and Offices,
and Director Residency Provisions
The Seventh Article of the current Restated Certificate of
Incorporation includes provisions regarding the location of books and records,
the location of meetings and offices and the residency of the directors.
Delaware corporation law does not require a certificate of incorporation to
include such provisions, and without such provisions, a corporation may
nevertheless keep its books and records outside the State of Delaware, and a
director may be a non-resident of the State of Delaware. Consistent with many
other public companies, the Board recommends that these provisions be included
in Bylaws, and that these unnecessary provisions of the Restated Certificate of
Incorporation be eliminated.
Special Stockholder Meetings Provision Added
Article 6 of the proposed Amended and Restated Certificate of
Incorporation includes a provision that special meetings of stockholders may be
called by the Board, a Board committee with delegated authority, the Chairman,
the CEO or the President, all of which are typical of public companies and are
permitted under Delaware corporation law.
Elimination of Interested Director and Interlocking Boards Provisions
The Seventh Article of the current Restated Certificate of
Incorporation provides that in the absence of fraud, a contract or transaction
with an interested director would not be invalidated provided the interest was
disclosed, and a majority of disinterested directors approved the contract or
transaction and there was a quorum of disinterested directors. Delaware
corporation law provides that a contract or transaction with an interested
director must be approved by a majority of disinterested directors of the board
or a committee (even if there is not a quorum of disinterested directors), or a
majority of stockholders, or the contract or transaction was fair to the
corporation at the time it was approved by a majority of directors, a committee
of the board or a majority of the stockholders. The Board believes that the
current provisions are unnecessary and pose a risk of conflict with Delaware
corporation law, and it is in the best interest of the Company to eliminate the
provision in the current Restated Certificate of Incorporation and rely on
Delaware statutory provisions.
The Seventh Article of the current Restated Certificate of
Incorporation includes a provision that allows a director to vote on
transactions between the Corporation and a subsidiary or affiliate, regardless
of whether such director was also a director of such subsidiary or affiliate.
The Board has determined that it is in the best interests of the Company and its
stockholders to eliminate this provision. The Board will address whether it is
appropriate for such "interlocking board" members to vote on transactions after
considering all relevant facts, rather than allowing such directors to vote per
se.
No Written Action by Stockholders Provision Added
Article 6 of the proposed Amended and Restated Certificate of
Incorporation includes a provision that specifies that all stockholders' actions
must be taken at a meeting and not in writing. The current Certificate of
Incorporation does not provide for stockholder action by written consent, but
the Board believes that the Restated Certificate of Incorporation should
specifically state this prohibition.
Update of Reorganization Arrangements Provision
The Delaware general corporation law references in the Eighth Article
of the current Restated Certificate, which provides that 75% of the creditors
and stockholders may enter into a binding reorganization agreement, with court
10
sanction, that is binding upon all creditors and stockholders and the
corporation have been updated in Article 8 of the proposed Restated and Amended
Certificate.
Elimination of Business Combination With Significant Stockholders Provision
The Ninth Article of the current Restated Certificate of Incorporation
contains provisions which restrict certain transactions involving the Company
and certain of its stockholders and are generally referred to as anti-takeover
provisions. These provisions require approval of 75% of the outstanding shares
of common stock for merger, consolidation and asset sale transactions with
interested stockholders (generally a 10% stockholder of the Company or an
affiliate of such stockholder), unless such transactions are approved by a
majority of the "Continuing Directors," as such term is defined in the current
Restated Certificate of Incorporation, in which case a majority common stock
vote is required to approve such transactions. The current Restated Certificate
of Incorporation also includes detailed provisions regarding the duties of
directors in transactions involving interested stockholders.
Delaware corporation law also contains takeover provisions called
"freeze out fair price laws" that apply to companies listed on national
exchanges and that have over 2,000 stockholders. These rules prohibit for a
period of three years self-dealing transactions between an acquirer of a
substantial block of stock and the subject corporation unless, among other
reasons, the board approved the transaction by which the interested stockholder
acquired its stock or two-thirds of the outstanding voting shares of the
corporation approve the transaction. The Board believes that these rules and
regulations are substantially similar to the material provisions contained in
the current Restated Certificate of Incorporation, but are less restrictive of
takeover efforts than the current charter provisions. The Board believes that
the provisions contained in the current Restated Certificate are, therefore,
unnecessary. The Board recommends that these provisions be eliminated and that
the Company rely on the provisions of Delaware corporation law.
Elimination of Amendment of Certificate of Incorporation Provision
The Tenth Article of the current Restated Certificate of Incorporation
includes a provision requiring 75% common stock approval to amend the
certificate of incorporation to (a) change the current common stock voting
rights, (b) amend certain provisions related to the number of directors and the
terms of directors and (c) approve a merger or consolidation of the Corporation
with an interested stockholder. However, the supermajority vote provisions do
not apply if the amendments are unanimously approved by "Continuing Directors"
as such term is defined in the current Restated Certificate of Incorporation.
All of the proposed amendments to and restatement of the current Restated
Certificate of Incorporation were unanimously approved by the Board, and the
Board has determined that all of the members of the Board are deemed to be
"Continuing Directors." Therefore, amendment of these provisions does not
require a supermajority vote of common stockholders.
The supermajority voting rights contained in the current Restated
Certificate of Incorporation are not mandated by Delaware corporation law and
are not typical of public companies. Similar to the proposed amendments
described in the preceding section regarding elimination of provisions
restricting business combinations with significant stockholders, the Board
believes that these provisions are unnecessarily restrictive and recommends that
they be eliminated. If the proposed Amended and Restated Certificate of Incorporation is approved by stockholders, further amendment would require
approval of a majority of the stockholders.
Elimination ofBoard will adopt conforming amendments to our Bylaws. Required Stockholder Meeting Notice and Other Requirements; Dividend
Provision Added
The Board recommends that certain provisions toApproval
Under the method by which
stockholder actions must be taken and the method of giving notice for
stockholders meetings be eliminated. Such provisions are included in the
Company's Bylaws and are governed by Delaware corporation law.
The Board also recommends that the proposed certificate include a
provision that the holders of common stock shall be entitled to dividends, if,
as and when declared by the Board. This is a standard provision that commonly
appears in certificates of incorporation and is consistent with stockholders'
statutory rights under Delaware corporation law.
RESTATE THE RESTATED CERTIFICATE OF INCORPORATION BY INCORPORATING THE NEW
AMENDMENTS INTO A SINGLE DOCUMENT
Because of the extensive changes that have been proposed to the current
Restated Certificate of Incorporation, the Board recommends thatproposed amendment to the Restated Certificate of Incorporation must be amended and restated in full, rather than
amendedapproved by filing a separate certificate of amendment to incorporate the
approved amendments.
Approval of Proposal One requires the affirmative vote of the holders of a majority of the voting power of the outstanding shares of capital stock of the Company. Accordingly, this proposal will be approved upon the affirmative vote of the holders of 50% of our outstanding common stock. Approval of Proposal
OneAbstentions and broker non-votes will authorize allhave the same effect as an “Against” vote with respect to this proposal.
Legal Effectiveness
If the proposed amendmentsamendment to the current Restated Certificate of Incorporation and restatementis approved by the requisite vote of our stockholders, the Restatedmodification will become effective upon the filing of an appropriate amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, which we would file promptly after the 2016 Annual Meeting of Stockholders.
The Board of Directors recommends a vote “FOR” approval of the amendment to our Certificate of Incorporation.
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (CD&A) describes our executive compensation programs, including the oversight of such programs by the HR Committee of our Board and the rationale and processes used to determine the 2015 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation, and post-termination compensation. This CD&A, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section. For ease of reference, a table of contents specific to this CD&A is provided below.
This CD&A is organized into the following sections:
| |
● | Executive Summary— Highlights of our 2015 executive compensation program and results. |
| |
● | Pay for Performance— How our pay and performance, relative to our peers, provides value to our stockholders. |
| |
● | Say-on-Pay Results— Details about our Board's consideration of prior shareholder voting results concerning executive compensation. |
| |
● | Governance of Our Executive Compensation Programs— How our HR Committee oversees our executive compensation program. |
| |
● | Targeted Overall Compensation and Competitive Analysis — How our HR Committee determined 2015 compensation levels. |
| |
● | Executive CompensationComponents— Details about our 2015 executive compensation program. |
| |
● | Other Compensation Policies — Information on other aspects of our compensation philosophy. |
|
| | | | | |
| CD&A Table of Contents | Page | |
| Executive Summary ....................................................................................................................................... | 14 | |
| | 2015 Results | 14 | |
| | Compensation Practices | 16 | |
| | Compensation Components | 17 | |
| Pay for Performance ...................................................................................................................................... | 18 | |
| | Value Provided to Stockholders | 18 | |
| | Performance Relative to Our Peers | 19 | |
| | Peer Group for 2015 | 19 | |
| Say-on-Pay Results ........................................................................................................................................ | 21 | |
| Governance of Our Executive Compensation Program ............................................................................. | 21 | |
| | Human Resources Committee | 21 | |
| | Independent Compensation Consultant | 22 | |
| | Decision-Making Process and Role of Executive Officers | 22 | |
| Targeted Overall Compensation and Competitive Analysis ....................................................................... | 22 | |
| | Compensation Philosophy | 22 | |
| | Independent Compensation Consultant Data and Analysis | 23 | |
| | CEO Pay Ratio and Wealth Accumulation | 24 | |
| Components of Executive Compensation for 2015 ..................................................................................... | 26 | |
| | Base Salary | 26 | |
| | Annual Cash Incentive Awards | 27 | |
| | Long-Term Performance-Based Equity Awards under the Equity Compensation Plan | 31 | |
| | | 2015 Long-Term Incentive Program Performance Unit Grants | 32 | |
| | | 2015 Executive Retention / Retirement Program Restricted Share Grants | 33 | |
| | | Vesting of 2013 Long-Term Incentive Program Performance Unit Grants in 2015 | 34 | |
| Other Compensation Policies ....................................................................................................................... | 35 | |
| | Stock Ownership Guidelines | 35 | |
| | Retirement and Other Benefits | 35 | |
| | Severance and Post-Termination Benefits | 36 | |
| | Non-Qualified Deferred Compensation | 36 | |
| | No Employment Agreements | 36 | |
| | Tax Treatment of Certain Compensation | 36 | |
|
|
Compensation Discussion & Analysis |
Executive Summary
2015 Results
In 2015, we continued to show strong operating results, which have translated into returns for our stockholders. We achieved our best ever safety results and customer satisfaction rating, while providing our customers with reliable service and our stockholders with returns among the industry leaders.
| |
● | Our net income grew 25.4 percent to $151.2 million in 2015 from $120.6 million in 2014. |
| |
● | For the three-year period ending December 31, 2015, our total shareholder return (TSR) was 73.9 percent (as calculated by SNL Financial and assuming reinvestment of dividends), a return that was the highest in our peer group and significantly above our peer group average (50 percent), the S&P utility index (39 percent), and the S&P 500 index (53 percent), over that same time period. |
| |
● | Our return on average equity (ROAE) has averaged 10.1 percent over the last three years. |
| |
● | In 2015, we paid an annual dividend of $1.92 per share, which provided a dividend yield of approximately 3.5 percent, based on our closing stock price of $54.25 per share on December 31, 2015. |
We were able to continue to achieve these strong operating results during 2015, while successfully completing our first general electric rate case in South Dakota since 1980 and simultaneously acquiring the 80 megawatt Beethoven wind project located near Tripp, S.D., for approximately $143 million. As a result of the South Dakota electric rate case, the South Dakota Public Utilities Commission authorized NorthWestern to increase base rates by $20.2 million annually, based on an overall rate of return of 7.24%, and to collect approximately $9 million annually related to the Beethoven wind project, even though the acquisition occurred after NorthWestern filed the general electric rate case.
In spite of this strong operating performance and completion of the South Dakota electric rate case and the Beethoven wind project acquisition, the overall compensation of our executives ranks near the bottom of our peer group, which is identified on page 19 of this proxy statement. In summary, for 2014 (the most recent year for which our peer group executive compensation is publicly available):
| |
● | Our named executive officers had an average compensation (as published in the 2014 proxy statement Summary Compensation Table for each respective company, excluding change in pension value) that was less than all but four of the other 14 companies in our peer group, with our average compensation per named executive officer of approximately $1.07 million versus the median of the average compensation per named executive officer of our peer group of approximately $1.35 million. |
| |
● | Our CEO’s total compensation was approximately 75 percent of the median total compensation (excluding change in pension value) of the CEOs in our peer group. |
|
| | | | |
|
| Named Executive Officers for 2015 | |
|
Robert C. Rowe | | Brian B. Bird |
President and Chief Executive Officer | | Vice President and Chief Financial Officer |
| | |
Heather H. Grahame | | Curtis T. Pohl |
Vice President and General Counsel | | Vice President - Distribution |
| | |
Bobbi L. Schroeppel | | |
| Vice President - Customer Care, Communications and Human Resources | | | |
|
|
|
Compensation Discussion and Analysis |
Relative to our peers, we are providing strong financial results, with the highest TSR of any of our peers from 2013 to 2015 (according to SNL Financial and assuming reinvestment of dividends) and a TSR better than the average of our peer group in 2015. Meanwhile, our CEO pay has been below average, ranking tenth highest over the last one- and three-year periods for which proxy compensation data is available. Later in this CD&A, we provide additional details concerning (1) the compensation of our executives in comparison to our peers as summarized above, (2) the graphics below, and (3) the members of our peer group.
|
| |
3-YEAR |
10th Highest CEO Pay | Highest TSR |
of 15 Peers | of 15 Peers |
| |
| |
1-YEAR |
10th Highest CEO Pay | 7th Highest TSR |
of 15 Peers | of 15 Peers |
| |
We consider our executive compensation program to be instrumental in helping us achieve our business objectives and effective in rewarding our executive officers for their role in achieving strong financial and operational performance. Based on our performance and our compensation outcomes, we are requesting your support of Proposal No. 3 — Advisory Vote to Approve Named Executive Officer Compensation.
Our overarching philosophy concerning executive compensation is that it should be structured to be market competitive and to align the long-term interests of our executives, our stockholders and our customers so that the compensation appropriately reflects performance in achieving financial and non-financial operating objectives. In order to live up to our philosophy, we believe that a significant portion of an executive’s compensation should be “at-risk” in the form
attached heretoof performance-based incentive awards that are paid, if earned, as
Exhibit A.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AMENDMENT AND
RESTATEMENT OF THE RESTATED CERTIFICATE OF INCORPORATION IN THE
FORM ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT.
11
PROPOSAL TWO:
ELECTION OF DIRECTORS
In accordance with NorthWestern's current Restated Certificatea result of Incorporationindividual and Bylaws, NorthWestern's directors are elected to staggered
terms on a classified Board of Directors. The Restated Certificate authorizescompany performance.
|
|
Compensation Discussion & Analysis |
Our executive compensation program is designed to:
| |
● | Attract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our financial and operational size; |
| |
● | Reward executives for both individual and company performance (based on financial, reliability, customer care, and safety metrics) through performance-based, at-risk compensation; and |
| |
● | Maximize long-term stockholder value by putting a significant emphasis on financial performance, reliability, safety, and customer satisfaction. |
|
| | |
| | |
| Compensation Practices |
| | |
| Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices. |
| | |
| What We Do |
| ● | Place a significant portion of executive compensation at risk by granting incentive awards that are paid, if earned, based on continuing annual and long-term individual and company performance. |
| ● | Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests. |
| ● | Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience, and other factors. |
| | |
| What We Don’t Do |
| ● | Use employment or golden parachute agreements. |
| ● | Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in our Equity Compensation Plan and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control. |
| ● | Grant stock options. No stock options are currently outstanding, and none have been issued under our Equity Compensation Plan. |
| ● | Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our Equity Compensation Plan. |
| ● | Promise multi-year guarantees for salary increases. |
| ● | Provide perquisites for executives that differ materially from those available to employees generally. |
| ● | Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service. |
| ● | Pay tax gross-ups to our named executive officers. |
| ● | Pay dividends or dividend equivalents on unvested performance shares or units. |
| ● | Allow our executives or directors to hedge or pledge company securities. |
| | |
|
|
Compensation Discussion and Analysis |
Compensation Components
For 2015, our executive compensation package included the same components as in each of Class I, Class II2014 — base salary, annual cash incentive awards, and Class III. Twolong-term equity incentive stock awards. All of the Company's
Class III directors, Merle Lewis,incentive awards (annual and long-term) were performance-based. The annual incentive award utilized financial and operational measures and were issued under our annual incentive plan. The long-term incentive stock awards were issued under our Equity Compensation Plan, targeted multi-year financial performance goals, and consisted of two programs. The first program, our long-term incentive program, or LTIP, was an award of performance units that cliff vest after a three-year performance period tied 50 percent to TSR (relative to our peer group) and 50 percent to earnings per share (EPS) growth and ROAE. The second program, our executive retirement / retention program (ERRP), was an award of restricted share units that cliff vest after a five-year performance period that is tied to improved net income and, if earned, will be paid out over a five-year period after the Company's former chief executive officer,separates from service with the company. Unlike many other companies, we do not offer a non-performance-based supplemental executive retirement plan.
|
| | | | | |
Component | Description | Why we include this component | How we determine amount | Decisions for 2015 | Reason for Change |
Base Salary | Short-term fixed cash compensation | Provide a base level of compensation for executive talent | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | Our CEO and three other executives received the three percent increase generally provided to all employees; our five other executives received additional increases in base salary | To remain market competitive and provide cost of living adjustment |
Annual Cash Incentive | Short-term variable cash compensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) and individual performance | Motivate employees to meet and exceed annual company objectives that are part of our strategic plan | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | There were no changes to the annual cash incentive component for 2015 | Not applicable. |
Performance Unit Awards under Long-Term Incentive Program (LTIP) | Long-term variable equity compensation, paid following three-year vesting period if corporate performance metrics (EPS, ROAE, and TSR) are achieved | Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholders | Market survey of similar peer group roles and responsibilities and assessment of the strategic value of each position | Increased target opportunity for two executives | To increase the compensation opportunity for strategic positions to align with market median |
Restricted Share Grants under Executive Retention / Retirement Program (ERRP) | Long-term variable, equity compensation, with corporate performance metrics over a five-year vesting period; paid over five-year period following separation from service | In lieu of a non-performance based supplemental retirement benefit, provide market-competitive, performance-based compensation opportunity that aligns interests of executives and stockholders, while encouraging retention and the continuity of our strategic plan | Peer group and competitive survey data and judgment on internal equity of positions and scope of responsibilities, as well as an assessment of the strategic value of each position | There were no changes to the restricted share grants under the Executive Retention / Retirement Program | Not applicable. |
|
|
Compensation Discussion & Analysis |
Pay for Performance
Our HR Committee has designed our compensation program to align pay with performance. Our executives are rewarded for providing value to stockholders and Lionel Nowell, together with a Class II director, Richard Hylland,performing relative to our peer group, which is summarized on page 19 of this proxy statement.
Value Provided to Stockholders
As highlighted above in the Company's former chief operating officer,Executive Summary of this CD&A, the value we have resigned sinceprovided to our stockholders over the last annual
meeting, Mr. Lewispast one-, two-, and Mr. Hylland recently. The remaining members ofthree-year periods has been among the Board
have appointed a replacement for one of the former Class III directorsindustry leaders and, are
recommending a new nominee for the other vacancy in Class III. Atpast five years, has surpassed the Meeting,
three directors will be electedS&P 500 index and the S&P utility index.
These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to Class IIIour annual cash incentive plan for 2015, our financial results were at 99.6 percent of the Board,target and our customer satisfaction results were at an all-time high. When combined with our reliability and safety results that were down from prior years due to hold officean extreme weather event and a work-related fatality, our annual cash incentive plan was funded at 80 percent of target for a
term of three years, until the Annual Meeting of Stockholders in 2006, and until
their successors are duly elected and qualified. In the event a nominee is
unable to serve as a director at the time of the Meeting, the shares represented
by the proxies may (subject2015 for executives (due to the limitations described abovework-related fatality) and 88 percent of target for other employees.
The grants of long-term performance units that were made in 2013 pursuant to the discretion ofLTIP vested on December 31, 2015. The performance measures associated with those grants were measured over a three-year vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the proxy holders) be voted for any nominee who shall be
designated by the present Board to fill the vacancy. Two of the nominees,
Chairman of the Board Marilyn R. Seymann, Director Lawrence J. Ramaekers, are
presently serving as directors and have consented to be named and to serve if
elected. The third nominee [______________] has not previously served on the
Board, and [s]he has consented to be named. NorthWestern continues to have an
additional vacancy on its Board in Class II, and the Governance Committee is
involved in a search to find a qualified candidate to be considered for election
to fill that vacancy. Proxies cannot be voted at the meeting for a greater
number of persons than the number of nominees named. Therefore, even if the
nominees named herein are elected to serve as directors, the Board will still
have one vacancy in Class II.
If a quorum is present at the Annual Meeting, the three nominees
receiving the highest number of affirmative votes of the votes cast shall be
elected as Directors.
Nominees
The following information is furnishedthree-year vesting period with respect to the nomineeLTIP metrics, attaining 16.4 percent average net income growth, 10.1 percent ROAE, and 67.4 percent TSR (second highest of our peers when calculated as required by the LTIP). Based on these results, the LTIP awards paid out at 167.3 percent of target.
The chart below shows the total return on an investment made over that same three-year vesting period and highlights our stock price performance with the S&P 500 and our peer group. TSR in the chart below is computed by SNL Financial and assumes reinvestment of dividends. The chart below shows our TSR of 73.9 percent. However, the calculation required by the LTIP results in a TSR of 67.4 percent for the same period. The difference in these TSRs is the method of calculation required by the terms of our LTIP, which uses a 20-day average stock price at the beginning and end of the performance period and does not assume reinvestment of dividends.
|
|
THREE-YEAR TSR |
|
Source: SNL FInancial LC |
|
|
Compensation Discussion and Analysis |
The charts below provide another example of pay for performance by illustrating the directional relationship between the compensation of our CEO and company performance over a five-year period based on the three performance metrics utilized in our LTIP performance units.
|
| | |
5-YEAR CEO PAY ALIGNMENT |
VS. NET INCOME | VS. ROAE | VS. CUMULATIVE TSR |
| | |
Net Income is stated in millions. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. |
Performance Relative to Class IIIOur Peers
As detailed below, relative to our peers, we are producing high performance for low pay. For the three-year period ending December 31, 2015, our TSR was the highest in our peer group (according to SNL Financial and assuming reinvestment of dividends), while our CEO’s compensation was the tenth highest of our 15-member peer group. In addition, the aggregate compensation provided to our named executive officers and the pay multiple of our CEO to the second highest paid named executive officer both lag the median of our peer group.
We also provide value to shareholders by maintaining a relatively small executive team. We currently have nine members on our executive team. As of February 11, 2016, ten of our peers have larger executive teams of eleven or more members; while, four of our peers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
|
| | | | | | |
|
| Peer Group for 2015 | |
|
ALLETE, Inc. | | Empire District Electric Company | | PNM Resources Inc. |
Avista Corp. | | Great Plains Energy Incorporated | | Portland General Electric Company |
Black Hills Corporation | | IDACORP, Inc. | | Questar Corporation |
Cleco Corporation | | MGE Energy Inc. | | Vectren Corporation |
El Paso Electric Co. | | NorthWestern Corporation | | Westar Energy, Inc. |
| | | | | | |
| Our HR Committee, in consultation with its independent compensation consultant, selects the members of our peer group and periodically examines whether the members continue to meet the criteria for inclusion. The HR Committee uses the following financial criteria to select our peer group: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million and $5 billion, and (3) energy-related revenue of at least 75 percent of total revenue. The HR Committee also requires that peer group companies either be located near our existing service territory or have both electric and gas customers. For 2015, our HR Committee, upon the advice of its independent compensation consultant, added Questar Corporation as an additional peer based on the criteria enumerated above. | |
|
|
|
Compensation Discussion & Analysis |
The following pay-for-performance charts and tables below reflect relative values for CEO pay that is expressed as a percentage of the highest value in the category and TSR expressed as a percentile of the range between the highest and lowest peer TSRs. The charts and tables demonstrate that, over the past three years, our CEO is generally being compensated at a lower level than the CEOs of most of our peers, while leading strong performance for stockholders relative to our peers, including achievement of the highest TSR for the three-year period ending December 31, 2015 (assuming reinvestment of dividends).
Datapoints within the shaded pay-for-performance alignment band reflect a strong correlation between pay and performance. Datapoints to the left and above the band suggest lower pay for higher performance; while those to the right and below the band suggest higher pay for lower performance.
|
| | | |
CEO PAY FOR PERFORMANCE VS. PEERS |
1-YEAR | 3-YEAR |
| | | |
|
| | | | | | | | | | |
Relative 1-Year CEO Pay* | | Relative 1-Year TSR* | | Relative 3-Year CEO Pay* | | Relative 3-Year TSR* |
Questar Corporation | 100% | | Westar Energy, Inc. | 100% | | Questar Corporation | 100% | | NorthWestern Corporation | 100% |
Westar Energy, Inc. | 96% | | PNM Resources Inc. | 97% | | Westar Energy, Inc. | 92% | | IDACORP, Inc. | 97% |
Avista Corp. | 94% | | IDACORP, Inc. | 96% | | PNM Resources Inc. | 87% | | Westar Energy, Inc. | 90% |
PNM Resources Inc. | 82% | | MGE Energy Inc. | 92% | | Great Plains Energy | 84% | | Avista Corp. | 88% |
Black Hills Corporation | 81% | | Avista Corp. | 90% | | Avista Corp. | 77% | | PNM Resources Inc. | 82% |
Vectren Corporation | 80% | | Great Plains Energy | 74% | | Vectren Corporation | 76% | | Vectren Corporation | 81% |
Great Plains Energy | 73% | | NorthWestern Corporation | 72% | | Black Hills Corporation | 73% | | Empire District Electric | 74% |
IDACORP, Inc. | 71% | | Portland General Electric | 72% | | IDACORP, Inc. | 67% | | Great Plains Energy | 64% |
Portland General Electric | 71% | | El Paso Electric Co. | 72% | | Portland General Electric | 61% | | MGE Energy Inc. | 61% |
NorthWestern Corporation | 55% | | Empire District Electric | 69% | | NorthWestern Corporation | 45% | | Portland General Electric | 59% |
ALLETE, Inc. | 46% | | ALLETE, Inc. | 59% | | Empire District Electric | 44% | | Black Hills Corporation | 49% |
Empire District Electric | 46% | | Vectren Corporation | 56% | | ALLETE, Inc. | 43% | | ALLETE, Inc. | 47% |
El Paso Electric Co. | 33% | | Black Hills Corporation | 39% | | MGE Energy Inc. | 29% | | El Paso Electric Co. | 36% |
MGE Energy Inc. | 29% | | Questar Corporation | 0% | | El Paso Electric Co. | 28% | | Questar Corporation | 0% |
| | | | | | | | |
* Relative CEO pay is expressed as a percentage of the highest CEO pay. Relative TSR is expressed as a percentile of the range between the highest and lowest peer TSRs. |
Source: CEO Pay for the one-year period is the 2014 total compensation and for the three-year period is the 2012-14 total compensation, as published in the 2013, 2014, and 2015 proxy statement Summary Compensation Tables for each respective company. We have excluded any change in pension value from the total compensation calculation because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. We also excluded Cleco Corporation’s data; due to its pending merger, compensation information for 2014 was not available. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2015, and assumes reinvestment of dividends. |
|
|
Compensation Discussion and Analysis |
As with our CEO’s total compensation package, the total compensation provided to our named executive officers, as a group, relative to our peers also demonstrates a strong pay-for-performance alignment for our stockholders. As shown in the charts below, our named executive officer group lags the median total compensation provided to our peer group named executive officers. The summary also depicts that the multiple of our CEO’s compensation compared with our next most highly compensated named executive officer is significantly less than our peer group median.
|
| |
NAMED EXECUTIVE OFFICER PAY VS. PEERS | PAY MULTIPLE OF CEO TO SECOND HIGHEST PAID NAMED EXECUTIVE OFFICER |
| |
| |
Source: Total compensation (excluding change in pension value) as published in the proxy statement summary compensation table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. |
Say-on-Pay Results
At our annual meeting in 2015, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the compensation of our named executive officers as disclosed in the proxy statement for that meeting. Our 2015 say-on-pay resolution and the 2014 compensation of our named executive officers was approved by 99.4 percent of the shares present and entitled to vote on the matter.
Although the results of the vote at the 2015 annual meeting occurred after the HR Committee took action to approve 2015 compensation, the HR Committee and the full Board reviewed the 2015 voting results concerning our say-on-pay resolution and have taken the results into account when establishing compensation for the named executive officers for 2016. The HR Committee believes the results from our 2015 annual meeting affirm our stockholders’ continuing support of the company’s approach to executive compensation. Thus, we believe our executive compensation programs appropriately align the long-term interests of management and our stockholders.
Governance of Our Executive Compensation Program
Human Resources Committee
The HR Committee, composed solely of independent directors, acts on behalf of and with the concurrence of the Board with respect to compensation, benefits, and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. The HR Committee considers several factors including but not limited to (1) the desire to align management (and employee) interests with those of stockholders and customers, (2) the desire to link management pay to both annual and long-term performance, (3) the need to attract talent from both within and outside the utility industry, (4) economic circumstances including turnover and retention considerations, (5) pay for performance (financial and operational) in all areas of compensation, and (6) executives participate in same base plans available to all non-union employees, with no additional perquisites — all of which ultimately influence our executive compensation program.
|
|
Compensation Discussion & Analysis |
Independent Compensation Consultant
In its governance of our executive compensation program, the HR Committee works with Willis Towers Watson, and, to a
three-year term expiringlesser extent, our CEO and chief financial officer (CFO). Willis Towers Watson, who reports directly to and is retained directly by the HR Committee, advises the HR Committee on an ongoing basis with regard to the general competitive landscape and trends in
May 2006:
Director Age on
Nominee Principal Occupation or Employment Since June 1, 2003
Marilyn R. Interim Chairman of the NorthWestern Board of Directors since January 2003; 2000 60
Seymann President and Chief Executive Officer of M ONE, Inc., a financial services
consulting firm, since 1991; Member of the Boards of Directors of Beverly
Enterprises, Inc. (NYSE: BEV), a healthcare service provider; and Community
First Bankshares, a financial institution.
Lawrence J. Director since May 2003; Formerly member of AlixPartners (1982-2000), a May 65
Ramaekers turnaround management firm. 2003
* New
Nominee
*compensation and executive and director compensation matters, including (1) competitive analysis, (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other matters requested by the HR Committee. A
third nomineeWillis Towers Watson representative attends meetings of the HR Committee as necessary and communicates directly with the chair of the HR Committee. Decision-Making Process and Role of Executive Officers
The HR Committee works with Willis Towers Watson to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for all of our executive officers. With respect to our CEO’s compensation, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance. The HR Committee considers our CEO’s preference to have a larger percentage of his pay be at-risk in the form of performance-based compensation and his overall compensation to be below the median of his peers. For the other executive officers, the CEO and CFO make recommendations to the HR Committee for all elements of compensation based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HR Committee recommends both CEO and executive officer compensation to the Board for approval. The CEO is not a member of the HR Committee and does not vote on Board matters concerning executive compensation.
The HR Committee’s annual process for determining executive compensation generally begins in July with a review and discussion of the overall timeline for compensation analysis and decision. In October, the HR Committee receives an overview on executive compensation, including a peer compensation analysis, from its independent compensation consultant, which includes preliminary analysis of the design of upcoming annual and long-term incentive opportunities. In December, the HR Committee evaluates the overall executive compensation program, reviews the company’s preliminary five-year financial plan, approves the annual cash incentive plan for the following year, reviews the proposed LTIP for the following year, and approves ERRP grants. In February, the HR Committee reviews the company’s final five-year financial plan, approves executive compensation and approves LTIP grants. In February, the HR Committee also reviews the company’s results under the performance metrics for the annual incentive plan for the prior year and for the LTIP which vested at the end of the prior year and approves payouts under such plans. At each of its regularly scheduled meetings throughout the year, the HR Committee reviews the company’s performance under all outstanding annual and long-term incentive plans.
Targeted Overall Compensation and Competitive Analysis
Compensation Philosophy
We target base salary, annual cash incentive awards, and long-term equity grants, as well as total compensation, to be market competitive for our executive officers. However, because comparative data is one of several tools that are used in determining executive officer compensation, competitiveness of compensation may fluctuate based on:
●The level of achievement of our pre-established performance goals;
●Our TSR compared against our peer group;
●Individual performance and scope of job responsibilities;
●Internal equity considerations;
●Market competitiveness and internal executive turnover; and
●The executive’s industry and position experience and tenure.
|
|
Compensation Discussion and Analysis |
|
| | |
In order to appropriately align the long-term interests of our executives, stockholders, and customers, we structure our executive compensation so that a significant component of an executive’s compensation is at risk in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance-based incentive awards that, in general, are more difficult to achieve than our peers, based |
on an analysis our independent compensation consultant conducted. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives. The target compensation mix for our named executive officers changed slightly in 2015 from 2014. As part of the overall compensation package for our named executive officers in 2015, our HR Committee increased the targeted long-term incentive opportunity for two of our named executive officers as described below in | |
| |
|
the 2015 Long-Term Incentive Program Performance Unit Grants section. As a result, the percentage of at-risk compensation component of the target compensation mix increased for our named executive officers, as a whole, to 64 percent from 62 percent. |
For our CEO, 74 percent of the overall targeted compensation (base salary and targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 57 percent. The charts below depict the target total compensation mix for our CEO and the average of our other named executive officers.
|
| | | |
CEO PAY MIX | | | OTHER NAMED EXECUTIVE OFFICER AVERAGE PAY MIX |
| | | |
| | | |
Charts represent target level for each component of compensation. |
Independent Compensation Consultant Data and Analysis
As a component of the HR Committee’s review of executive compensation matters, Willis Towers Watson provides an analysis of the pay levels of a peer group, as well as published survey data that focuses on the energy and utility industry, which is size-adjusted based on our revenues for appropriate market comparison. For 2015, the published survey data included the Willis Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Willis Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensation for our CEO and CFO because these positions are common among our peers. Both the peer group and survey data are analyzed and considered in setting compensation levels for the remaining named executive officers because these positions or division of responsibilities may not be common among each of our peers.
For long-term incentive purposes, Willis Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered.
|
|
Compensation Discussion & Analysis |
|
| | |
In addition to these efforts, Willis Towers Watson prepares an analysis of market data compiled from the Willis Towers Watson Compensation DataBank for energy services executives. The analysis examines the target direct compensation opportunity for energy services executives, including base salary, target annual incentives, and the expected value of long-term incentives. Using regression analysis, Willis Towers Watson size-adjusts the data to reflect our revenue scope. Based on this analysis and as illustrated in the chart to the right, the direct compensation opportunity for our highest-paid employees is below the market median of the direct compensation opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’ compensation opportunity is 77 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 89 percent, 85 percent and 84 percent, respectively, of the median. | | AGGREGATE COMPENSATION OPPORTUNITY FOR HIGHEST-PAID EMPLOYEES |
| |
| *Top 5 is based on 2015 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Willis Towers Watson. Values exclude any change in pension value. |
We also conducted a separate analysis of the 2014 executive compensation of the 14 other companies in our peer group. This internal analysis, which was based on proxy data, examined base salary, bonus, other annual compensation, equity awards, and non-equity incentive plan compensation (and excluded change in pension value). Using this analysis, our named executive officers had an average compensation that was less than all but three of the companies in our peer group, with an average compensation per named executive officer of approximately $1.07 million versus the average compensation per named executive officer of the median of our peer group of approximately $1.35 million. For 2014, our CEO’s total compensation was approximately 75 percent of the median total compensation of CEOs in our peer group.
These analyses demonstrate that, on average, we currently are below the middle of the competitive range. We also are cognizant of prevailing economic conditions, internal pay equity, and executive turnover, which our HR Committee takes into account when determining executive compensation.
CEO Pay Ratio and Wealth Accumulation
|
| |
We believe our executive compensation program must be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and the HR Committee monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees. The HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees in 2015. The compensation for our CEO in 2015 was approximately 19 times the median pay of our full-time employees. | |
For several years, we have voluntarily disclosed our CEO to median employee pay ratio in our proxy statement. To determine the median for our prior calculation, we considered only full-time employees as of the last day of the calendar year. Our prior calculation of the ratio included all components of compensation available to our CEO and other employees – base salary, annual cash incentive (at the targeted level), and long-term incentive awards (at the targeted level) – and excluded any benefits (which do not differ materially between executives and employees generally) and any overtime pay that employees received.
As a result of the recently adopted rules under Dodd-Frank Act, beginning with our 2018 proxy statement, the SEC will require disclosure of the CEO to median employee pay ratio for 2017 compensation. The method of calculating the required disclosure for 2017 compensation will differ from the method we previously used in calculating our ratio. Among other differences, we will be required to include: (i) part-time and full-time employees to determine the median employee; and (ii) overtime pay and the value of benefits in the calculation of total compensation.
|
|
Compensation Discussion and Analysis |
Accordingly, in the pay ratio table below, we have presented two calculations of our CEO to median employee pay ratio. The first ratio is calculated using the methodology we have used in our prior proxy statements. We will refer to this ratio as the NorthWestern Calculation. The second ratio is calculated in accordance with what the SEC will require in the future pursuant to Item 402(u) of Regulation S-K. We will refer to the second ratio as the Dodd-Frank Calculation. We believe presentation of these two ratios this year will provide an informative bridge from our practice of voluntarily disclosing our CEO to median employee pay ratio using the NorthWestern Calculation these past several years to the required disclosure of such ratio in the future using the Dodd-Frank Calculation.
With respect to the Dodd-Frank Calculation, we identified the median employee by examining the 2015 total cash compensation for all individuals, excluding our CEO, who were employed by us on December 18, 2015, the last day of our payroll year (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total cash compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2015. After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in the 2015 Summary Compensation Table later in this proxy statement.
As illustrated in the table below, our CEO to median employee pay ratio is 19:1 when calculated using the Dodd-Frank Calculation and 26:1 when using the NorthWestern Calculation.
|
| | | | | | | | | | | | | | | | | |
| | NorthWestern Calculation | | Dodd-Frank Calculation |
| President and CEO | | Median Employee | | President and CEO | | Median Employee |
Base Salary | | $ | 578,231 |
| | $ | 79,539 |
| | $ | 573,567 |
| | $ | 86,838 |
|
Annual Cash Incentive | | | | | | | | |
| Percent of base salary | | 80 | % | | 6 | % | | | | |
| Targeted annual cash incentive | | $ | 462,585 |
|
| $ | 4,772 |
| | | | |
Non-Equity Incentive Plan Compensation | | | | | | $ | 370,068 |
| | $ | 1,570 |
|
Performance Unit Awards under Long-Term Incentive Program | | | | | | | | |
| Percent of base salary | | 150 | % | | — | % | | | | |
| Targeted long-term incentive | | $ | 867,347 |
| | $ | — |
| | | | |
Restricted Share Grants under Executive Retention / Retirement Program | | | | | | | | |
| Percent of base salary | | 50 | % | | — | % | | | | |
| Targeted executive retention / retirement incentive | | $ | 289,116 |
| | $ | — |
| | | | |
Stock Awards | | | | | | $ | 1,131,121 |
| | $ | — |
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings (1) | | | | | | $ | 39,285 |
| | $ | 2,755 |
|
All Other Compensation | | | | | | $ | 41,564 |
| | $ | 22,734 |
|
TOTAL | | $ | 2,197,279 |
| | $ | 84,311 |
| | $ | 2,155,605 |
| | $ | 113,897 |
|
| | | | | | | | |
CEO Pay as Multiple of Median Employee | | 26 |
| : | 1 | | 19 |
| : | 1 |
| |
(1) | These amounts are attributable to a change in the value of each individual’s defined benefit pension account balance and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings, and actuarial assumptions. |
The HR Committee reviews annually the wealth accumulation of our executives, considering all of the elements of total compensation paid to each executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long-term incentive awards and any special payments made to an individual executive. The HR Committee also reviews the projected value of each executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation and “stay to normal retirement” scenarios. This is done to analyze not only the amount of compensation each executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the executive officers accumulate in the future.
|
|
Compensation Discussion & Analysis |
Components of Executive Compensation for 2015
|
| | |
| | |
| The primary components of total compensation for our executive officers for 2015 were: |
| ● | Base Salary |
| ● | Annual performance-based cash incentive awards; and |
| ● | Long-term performance-based equity incentive awards in the form of performance units and ERRP restricted share units. |
| | |
The HR Committee believes these compensation components align the interests of our executives and our stockholders by basing a significant portion of total compensation on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangements and individual position and performance. Base salary represents 26 percent of our CEO’s targeted total compensation and, on average, 43 percent of our other named executive officers’ targeted total compensation. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.
The HR Committee also believes that our executive compensation program appropriately mitigates the risk associated with incentive-based pay. The HR Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive components to curb inappropriate risk taking. For example, we do not offer guaranteed bonuses. In addition, our annual and long-term performance-based incentive awards utilize multiple performance metrics which vary from plan to plan, and rewards under those plans are aligned with the interests of our stockholders. If our stockholders benefit from our performance, our executive officers are rewarded. Our ERRP restricted share units also benefit our long-term succession and strategic plan by providing for payment only after the recipient leaves employment with us, and then over a five-year period. Furthermore, we have limited severance packages, we do not maintain a non-performance-based supplemental executive retirement plan, and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of Executive Officers and Directors” section of this proxy statement. Finally, we maintain stock ownership guidelines for our executives. In light of these pay practices, the HR Committee believes that our executive compensation program appropriately address the risks associated with performance-based incentives.
Base Salary
The general guideline for determining salary levels for our executive officers, including the CEO, is to be around the middle of the competitive range, adjusted for other factors such as trade area economics, turn-over, tenure, and experience. Adjustments from market levels are made based on experience in the position, industry experience, and individual performance and responsibilities. While we are cognizant of the competitive range, our primary goal is to compensate our executives at a level that best achieves our compensation philosophy, whether or not this results in actual pay for some positions that may be higher or lower than the market median. We find that survey results for particular positions can vary from year to year. Thus, we consider market trends for certain positions over a period of several years rather than a one-year period in setting compensation for such positions.
|
| | | | | | | | | | |
The HR Committee considers adjustments to base salaries for the executive officers on an annual basis. For 2015, the HR Committee felt that an increase to the base salaries of our executive officers in line with the industry average and the increases provided to our employees generally was reasonable in light of the company’s strong operating results and increased stockholder returns in 2014. The HR Committee also considered that our executive officer base salaries remained below the median compensation of our peers |
even with the increase and determined to increase the base salaries of certain of our executive officers, including two of our named executive officers, beyond the three percent increases provided to our employees generally. The table to the right sets forth the base salaries for our named executive officers. The base salary adjustments for 2015 were effective April 1, 2015. | | | | | | | | |
| | | Annualized Base Salary | | Increase (%) |
| Name | | 2014 ($) | | 2015 ($) | |
| Robert C. Rowe | | 561,389 |
| | 578,231 |
| | 3.0 |
| Brian B. Bird | | 368,280 |
| | 399,952 |
| | 8.6 |
| Heather H. Grahame | | 335,127 |
| | 350,208 |
| | 4.5 |
| Curtis T. Pohl | | 263,853 |
| | 271,769 |
| | 3.0 |
| Bobbi L. Schroeppel | | 243,253 |
| | 250,551 |
| | 3.0 |
|
|
Compensation Discussion and Analysis |
Annual Cash Incentive Awards
The overall design of our 2015 annual incentive plan was the same as our previous year’s plan.
Annual cash incentive awards are used to motivate employees to meet and exceed annual company objectives that are a part of our strategic plan. All regular, non-represented employees, including executive officers, participate in the same plan described in this section, and regular, represented employees participate in a separate, but similar, management-designed program. Actual payouts for annual cash incentive awards reflect both (1) company performance based on financial and operational measures and (2) the employee’s individual performance.
There are four factors that determine the amount of the final payout under the annual incentive plan:
| |
(2) | Target incentive percentage of base salary; |
| |
(3) | The annual incentive plan funding percentage (based on financial, safety, reliability, and customer care performance metrics); and |
| |
(4) | The individual’s performance multiple. |
Actual payouts of annual cash incentive awards are calculated pursuant to the following formula:
Each year, the HR Committee approves a target incentive percentage of base salary for each executive based on the internal and external factors previously noted. Management also annually proposes specific performance targets for the company’s financial and operational measures, which are reviewed, and, after considerable discussion and usually some modification, approved by the remaining membersHR Committee as well as the Board. Following the end of the fiscal year, the HR Committee reviews data submitted by management on company performance against each of the specific performance targets and determines the degree to which each financial and operational measure was met during the year, subject to Board approval. The aggregate percentage of financial and operational measures met during the year represents the plan funding percentage for the annual incentive plan.
The funding (as a percentage of target) under the annual incentive plan has ranged from 98 percent to 125 percent for the four previous years, as set forth in the table below.
|
| | | |
Historical Funding of Annual Cash Incentive (as a percentage of target) |
2011 | 2012 | 2013 | 2014 |
101% | 98% | 108% | 125% |
The HR Committee may use discretion in increasing or decreasing the plan funding percentage from actual performance due to specific facts and circumstances, such as current economic conditions as well as unusual one-time events that significantly impact financial or non-financial results. The HR Committee exercises this discretion only for unusual, non-operational items. As described further below, each executive’s annual individual performance is then evaluated in order to determine a performance multiple, which is factored into the incentive payout calculation.
The target annual incentive opportunities for our executive officers are derived in part from peer group and competitive survey analysis data and in part by the HR Committee’s judgment on the internal equity of the positions, scope of job responsibilities, and the executives’ industry experience and tenure. Potential adjustments to the annual incentive target for the executive officers are considered by the HR Committee on an annual basis.
|
|
Compensation Discussion & Analysis |
|
| | | | | | | | |
The HR Committee did not adjust the 2015 target annual incentive opportunity for any of our named executive officers (or any of our other executive officers) because the HR Committee believed the annual incentive targets were appropriate and commensurate with the responsibilities of those executives. The table to the right sets forth the 2015 annual incentive opportunity for our named executive officers. | | | | 2015 |
| Name | | Base Salary | | Target Incentive Opportunity (% of base salary) | | Target Incentive Opportunity ($) |
| Robert C. Rowe | | $578,231 | | 80 | | $462,585 |
| Brian B. Bird | | $399,952 | | 50 | | $199,976 |
| Heather H. Grahame | | $350,208 | | 45 | | $157,594 |
| Curtis T. Pohl | | $271,769 | | 40 | | $108,708 |
| Bobbi L. Schroeppel | | $250,551 | | 35 | | $87,693 |
As more fully described below, the actual amount of money available for awards (the award pool) is based on overall plan funding. Each year, the HR Committee determines funding of the award pool based on its assessment of overall company performance during the year, measured against pre-established financial and operational metrics.
The HR Committee determined that the metrics and relative weightings focus the organization on desired performance for the following reasons:
| |
● | Net income, 55 percent of the funding opportunity – Net income was chosen as the financial metric because it is a financial measure that investors consider significant to evaluate company performance, and net income can be directly affected by individual employee and team performance. |
| |
● | Operational targets related to safety, reliability, and customer satisfaction, 45 percent of the funding opportunity – We believe that employee safety and providing reliable service to our customers’ satisfaction over the long term are critical to our customer commitment and regulatory obligations, which ultimately supports our financial goals and enhances stockholder value. |
|
| | |
In order for any awards under the 2015 annual incentive plan to be earned and paid out, a minimum of 90 percent of the company’s budgeted net income target must have been attained, which coincides with the threshold net income target for the plan. This metric for determining performance against our financial goal is derived from our audited financial statements. However, the HR Committee, in its discretion, may consider certain items or events as unusual when determining performance against the metric and make what it deems to be appropriate adjustments. In addition, the 2015 annual incentive plan provided that the 2015 safety portion would be forfeited in the event of a work-related fatality, unless the HR Committee determined that no actions on the part of the employee or the Company contributed to the incident. | | Annual Incentive Plan Metrics |
| |
For 2015, based on company performance, the annual incentive plan was funded at 80 percent of target for our executives (for non-executive employees, the plan was funded at 88 percent). The narrative which follows highlights some of the results we achieved under the individual performance metrics, followed by a table with the specific results for each metric.
Net Income. In calculating performance under the net income metric, the HR Committee determined that actual net income for 2015 was $151.2 million, against a target of $151.4 million, resulting in a funding of 99.6 percent for our net income metric.
Safety. In 2015, our employees achieved safety performance above targeted levels. However, we also experienced the tragic death of one of our employees in a work-related accident. Despite our otherwise good safety performance in 2015, due to this work-related fatality, the 2015 safety portion of the incentive was forfeited for all of our executives, pursuant to the terms of the 2015 annual incentive plan.
Reliability. Our ability to provide reliable utility service to our customers is important. However, both of our electric reliability metrics failed to achieve target, in part due to a significant wind storm affecting our Montana operations, while one of our gas reliability metrics exceeded target and the other fell short of target. When the HR Committee initially adopted the 2015 annual incentive plan, the electric reliability metrics were based upon historical results that inadvertently included planned outages. The HR Committee determined that
|
|
Compensation Discussion and Analysis |
including planned outages in the metrics would create the wrong incentive (by penalizing necessary reliability maintenance) and exercised its discretion to exclude planned outages from the calculation of performance under the electric reliability metrics.
Customer Satisfaction. In 2015, we achieved our highest ever J.D. Power overall customer satisfaction score. This independent verification of our efforts to serve our customers to their satisfaction is important. We also met threshold on two separate, customer satisfaction measures.
The table that follows shows the associated performance metrics (including threshold, target, and maximum levels), weighting and plan payout percentage for each of the 2015 performance measures, which resulted in the plan funding at 80 percent of target for our named executive officers.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 Annual Incentive Plan Information |
Performance Measures | | Weight (% of Total Plan Payout) | | Performance Level | | Target % Achieved | | Final Funding % of Total |
Threshold | | Target | | Maximum | | Actual Achieved |
| | | | | | | | | | | | | | |
Financial (55%) | | | | | | | | | | | | | | |
Net Income ($ in millions) (1) | | 55 | % | | $ | 136.3 |
| | $ | 151.4 |
| | $ | 166.5 |
| | $151.2 | | 99.5 | % | | 54.7 |
|
| | | | | | | | | | | | | | |
Safety (15%) (2) | | | | | | | | | | | | | | |
Lost Time Incident Rate | | 7.5 | % | | 0.9 |
| | 0.7 |
| | 0.5 |
| | 0.7 |
| | — | % | | — |
|
Total Recordable Incident Rate | | 7.5 | % | | 2.6 |
| | 2.3 |
| | 2.0 |
| | 1.8 |
| | — | % | | — |
|
| | | | | | | | | | | | | | |
Reliability (15%) (3) | | | | | | | | | | | | | | |
SAIDI (excluding major event days) | | 5.0 | % | | 120.0 |
| | 112.0 |
| | 101.0 |
| | 115.1 |
| | 80.5 | % | | 4.0 |
|
SAIDI (including major event days) | | 5.0 | % | | 185.0 |
| | 128.0 |
| | 113.0 |
| | 236.7 |
| | — | % | | — |
|
Gas – Damages per 1000 Locates | | 2.5 | % | | 2.7 |
| | 2.2 |
| | 1.7 |
| | 2.3 |
| | 90.0 | % | | 2.3 |
|
Gas – Leaks per 100 Miles of Main | | 2.5 | % | | 7.5 |
| | 6.2 |
| | 4.9 |
| | 5.3 |
| | 134.6 | % | | 3.4 |
|
| | | | | | | | | | | | | | |
Customer Satisfaction (15%) (4) | | | | | | | | | | | | | | |
JD Power Residential Electric and Gas Survey Performance Ranking | | 5 | % | | 635 |
| | 650 |
| | 655 |
| | 655.3 |
| | 150.0 | % | | 7.5 |
|
Operational Performance – Customer Survey by Flynn Wright | | 5 | % | | 36.87 |
| | 38.81 |
| | 40.75 |
| | 38.2 |
| | 83.8 | % | | 4.2 |
|
Reputational Perceptions – Customer Survey by Flynn Wright | | 5 | % | | 36.78 |
| | 38.72 |
| | 40.65 |
| | 38.1 |
| | 85.1 | % | | 4.3 |
|
| | | | | | | | | | | | | | |
| | | | | | | | TOTAL FUNDING PERCENTAGE | | | 80 | % |
| |
(1) | Net Income. The net income target is based upon the Board approved budget for the plan year, and the actual achieved is determined by what is reported in our annual report on Form 10-K for the plan year. |
| |
(2) | Safety. Safety performance is calculated by us and participating Edison Electric Institute (EEI) utilities as defined by Occupational Safety and Health Administration (OSHA). OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The threshold level for the safety measures represents our five-year average performance for these metrics, which is significantly above our EEI peer group average; the target level represents top tier performance for our EEI peer group and a 20 percent improvement over our five-year average performance for lost time incident rate and a ten percent improvement over our five-year average performance for total recordable incident rate; and the maximum represents top tier performance for our EEI peer group, significant improvement over historical company performance, and is significantly higher than our EEI peer group average. |
SAIDI (excluding major event days). System Average Interruption Duration Index (SAIDI) is a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc., utilities to measure the duration of interruptions on a utility’s electric system. SAIDI indicates the total duration of interruption for the average customer during a predefined period of time. The threshold level for SAIDI, excluding major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the difference of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI performance (excluding major event days) which was achieved in 2009.
SAIDI (including major event days). The threshold for SAIDI, including major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the gap of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI, including major event days, in the last five years.
Damages per 1000 Locates. This natural gas reliability metric assesses the effectiveness of the company’s programs to prevent damage to its natural gas system. The threshold level represents the company’s three-year average and is approximately 10 percent
|
|
Compensation Discussion & Analysis |
better than second quartile performance as reported in a leak reporting survey conducted by the American Gas Association (AGA); the target level represents a twenty percent improvement over the company’s three-year average; and the maximum level represents a 35 percent improvement over the company’s three-year average.
Leaks per 100 Miles of Main. This natural gas reliability metric assesses the overall performance of the company’s natural gas system. The threshold level represents a 50 percent improvement above second quartile average performance as reported by the AGA; the target level represents the company’s three-year average, which is first quartile performance; and the maximum level represents a 20 percent improvement over the company’s three-year average.
| |
(4) | Customer Satisfaction. |
J.D. Power. One customer satisfaction metric is measured by the broadly utilized J.D. Power residential electric and gas customer satisfaction surveys and studies, which include the following components: communications, corporate citizenship, billing and payment, price, power quality and reliability (electric) or field service (gas) and customer service. The threshold level represents the company’s three-year average; the target level is an improvement of one point over our best ever score, which we achieved in 2014; and the maximum level is a five improvement of ten points over 2015 target, which would be first quartile performance based on 2014 data.
Flynn Wright Surveys. The remaining two customer satisfaction metrics are measured based on the results of a 2015 customer tracking survey conducted on our behalf by Flynn Wright. For both of these metrics, the threshold level is set five percent below target; the target level represents our average scores for 2013 and 2014; and the maximum level is set at five percent above target.
|
| | |
| | |
| Clawback of Annual Cash Incentive Awards |
| Although we have not adopted a formal clawback policy, the annual cash incentive awards are specifically made subject to any formal clawback policy that we may adopt in the future. |
| | |
Individual Performance
The HR Committee analyzes the total mix of available information in making annual cash incentive determinations. Although actual performance measured against pre-established goals is the key component in determining both company and individual performance, the HR Committee may use judgment when determining whether company or individual goals have been attained.
For 2015, our net income increased by 25.4 percent over 2014, while our non-GAAP diluted adjusted earnings per share increased by six percent over 2014, adjusting for normal weather and other discrete events. Other significant achievements for 2015 included:
| |
● | Acquiring the Beethoven wind project in South Dakota, which increased our rate base by approximately $140 million; |
| |
● | Completing our first general electric rate case in South Dakota in over 34 years, increasing base rates by approximately $20.2 million annually; |
| |
● | Successfully accessing the equity capital markets to partially finance the Beethoven wind project acquisition with the issuance of 1.1 million shares of common stock with net proceeds of approximately $57 million; and |
| |
● | Successfully accessing the debt capital markets to finance the remainder of Beethoven wind project acquisition through the issuance of $70 million of 25-year first mortgage bonds and to fund other growth projects with $75 million of 10-year first mortgage bonds and $125 million of 30-year first mortgage bonds. |
|
|
Compensation Discussion and Analysis |
|
| | | | | | | | | |
These efforts were successful due to the substantial efforts of our executive officers and many other employees across all departments of the company. As a result of the factors noted above, the HR Committee |
determined that it was appropriate to award each named executive officer (and the other executive officers) the annual cash incentive award as provided by the 2015 annual cash incentive plan, without the addition of any performance multiplier. Actual 2015 annual cash incentive awards for the named executive officers are reflected in the table to the right. | | | | | | | | |
| Name | | 2015 Target Cash Incentive, as Percent of Base Salary (%) | | 2015 Actual Cash Incentive, as Percent of Base Salary (%) | | 2015 Cash Incentive Award ($) |
| Robert C, Rowe | | 80 | | 64 | | 370,068 |
|
| Brian B. Bird | | 50 | | 40 | | 159,981 |
|
| Heather H. Grahame | | 45 | | 36 | | 126,075 |
|
| Curtis T. Pohl | | 40 | | 32 | | 86,966 |
|
| Bobbi L. Schroeppel | | 35 | | 28 | | 70,154 |
|
Long-Term Performance-Based Equity Awards Under the Equity Compensation Plan
We have used our Equity Compensation Plan to provide for the award of long-term, performance-based incentive awards to our executive officers. These performance-based awards help us achieve our compensation philosophy of being market competitive while simultaneously aligning the interests of our executives and stockholders.
The Equity Compensation Plan authorizes several types of stock-based awards, including restricted stock and a variety of performance-based awards. In 2015, the HR Committee granted two types of long-term, equity incentive awards to our executives under the Equity Compensation Plan: (1) LTIP performance units with cliff vesting after a three-year performance period; and (2) a smaller award of ERRP restricted share units with cliff vesting after a five-year performance period and a payout over five years following the executive’s separation from service with the company. All of these 2015 awards are performance-based and payable, if and when earned, in shares of our common stock.
LTIP Performance Units. The HR Committee determines the terms and restrictions applicable to grants of LTIP performance units. After the company’s financial results are available for the prior year, the HR Committee approves the annual grant of LTIP performance units to our executive officers (and approximately 115 other participants) and selects a date (usually the date of the HR Committee’s action) when the awards will be granted, typically in February of each year. The awards of LTIP performance units are intended to provide a link between executive officer compensation and long-term stockholder interests as reflected in changes in our stock price, and to motivate and reward achievement of pre-established corporate financial goals and relative TSR. The HR Committee believes that making an annual grant of LTIP performance units motivates our executive officers (and the other participants) to focus on long-term, sustainable improvement in stockholder value because the award payout is tied to financial performance and continued service over a three-year period with cliff vesting at the end of such period, and the ultimate value delivered is dependent upon the value of our stock.
During the performance periods summarized in the table below, the performance measures for the LTIP awards included (1) a combined financial metric comprised of ROAE and either average earnings per share or net income growth, contributing 50 percent of the payout, and (2) TSR relative to our peer group, also contributing 50 percent of the payout. The table below shows, for the past five completed performance periods, the contribution of these two performance measures (and our relative TSR ranking within our peer group when calculated as required by the LTIP) to the overall payout (expressed as a percentage of target).
|
| | | | | |
| Performance Period |
| 2009-2011 | 2010-2012 | 2011-2013 | 2012-2014 | 2013-2015 |
Financial Measures Payout Percentage | 135.3% | 143.2% | 59.9% | 156.7% | 154.5% |
Relative TSR | 2nd of 12 | 4th of 12 | 4th of 12 | 2nd of 15 | 2nd of 15 |
Relative TSR Payout Percentage | 175.0% | 125.0% | 125.0% | 180.0% | 180.0% |
Total Payout Percentage | 155.2% | 134.1% | 92.5% | 168.4% | 167.3% |
ERRP Restricted Share Units. In 2011, the HR Committee made the first annual grants of ERRP restricted share units. The HR Committee instituted the practice of granting ERRP restricted share units to bring the long-term incentive component of our executives’ compensation in line with the median of our peers, while simultaneously encouraging retention with the five-year cliff vesting component and providing retirement
|
|
Compensation Discussion & Analysis |
benefits. The ERRP share units also encourage succession planning and continuity of our strategic plan through the five-year payout of vested awards following the executive officer’s separation from service with the company. The key distinction between these awards and the non-performance-based supplemental executive retirement plans that certain of our peers and many other companies provide is that our ERRP restricted share units are earned based upon company performance.
The number of ERRP restricted share units that the HR Committee has granted annually has been considerably fewer than the grants of performance units. Like the performance units described above, these restricted share units are intended to provide a link between executive officer compensation and retirement planning and long-term stockholder interests and to motivate and reward achievement of pre-established corporate financial goals. The HR Committee believes that an annual grant of restricted share units motivates our executive officers to focus on long-term, sustainable improvement in our business because (1) vesting of the award is tied to financial performance and continued service over a five-year period and (2) payout of the vested award occurs over a five-year period following the executive officer’s separation from service with the company. The first opportunity for grants to vest under the ERRP is on December 31, 2016.
2015 Long-Term Incentive Program Performance Unit Grants
In February 2015, the HR Committee approved grants of LTIP performance units subject to a three-year performance period with cliff vesting at the end of such period. The target long-term equity opportunities are derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the target value of each executive officer’s LTIP performance unit awards, the HR Committee considered the range for comparable roles within our peer group, with consideration given to the strategic value of each position. Based on these considerations, in 2015, the HR Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the LTIP awards for two of our named executive officers to align with the market median.
|
| | | | | | | | | | | |
Each executive officer’s targeted opportunity is converted into specific LTIP performance unit grants by dividing the total targeted value (the targeted percentage of base salary) by the fair market value of a share of our stock on the grant date. The resulting calculation represents the number of LTIP performance units |
that were granted and will vest on 31, 2017, if all performance goals are met at the target performance level. The target equity opportunities for the 2015 grants of LTIP performance units are shown in the table to the right. The table also compares the target opportunities (expressed as a percentage of base salary) applicable to the 2014 and 2015 awards. | | | | | | | | | |
| | | | Target LTIP Performance Unit Opportunity for 2015 |
| Name | 2014 Base Salary (%) | | 2015 Base Salary (%) | | 2015 Value at Target ($) | | LTIP Stock Awards (#) (1) |
| Robert C. Rowe | 150 | | 150 | | 842,084 |
| | 19,828 |
|
| Brian B. Bird | 92.5 | | 100 | | 368,280 |
| | 8,672 |
|
| Heather H. Grahame | 65 | | 70 | | 234,589 |
| | 5,524 |
|
| Curtis T. Pohl | 60 | | 60 | | 158,312 |
| | 3,728 |
|
| Bobbi L. Schroeppel | 40 | | 40 | | 97,366 |
| | 2,293 |
|
| | | | | | | | |
| (1) Based on a weighted average grant date fair value of $42.47, which was calculated using the closing stock price of $54.64 on February 11, 2015, less the present value of expected dividends |
After the performance period, the HR Committee calculates the actual company performance relative to the performance goals and determines the number of LTIP performance units that vest based on such performance. Depending on the calculated company performance, the exact number of LTIP performance units that vest will vary from zero to 200 percent of the target award. In addition, if earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the value at target as reflected in the following table, which is based on the fair market value of a share of our stock on the grant date.
These LTIP performance unit awards contain market- and performance-based components. The performance goals for these awards are independent of each other and are equally weighted. Vesting of awards is also contingent on maintaining investment grade credit ratings on both a secured and unsecured basis.
|
|
Compensation Discussion and Analysis |
The following table summarizes the performance measures for the 2015 LTIP performance unit awards.
|
| | | | | | | | | |
Performance Measures — 2015-2017 | | Threshold | | Target | | Maximum |
Financial Goals – 50% | | | | | | |
ROAE | | 9.25 | % | | 10 | % | | 10.75 | % |
Simple Average EPS Growth | | 1.6 | % | | 4.6 | % | | 7.6 | % |
TSR – 50% | | | | | | |
Relative Average vs. Peers | | 13th |
| | 6th |
| | 1st |
|
In general, based on a market analysis conducted by Willis Towers Watson, our metrics for relative TSR are established at levels higher than our peers and the market. For example, according to this market analysis, we use a ranking of 1st for maximum, while the market uses 3rd; we use a ranking of 6th for target, while the market uses 8th; and our threshold of 13th pays at ten percent, and 9th pays at 50 percent, while the market threshold of 12th pays at 50 percent.
The ROAE and simple average EPS growth levels are tied to management performance as this goal relates to revenue enhancement and cost containment. TSR is determined by our common stock price change and dividends paid over the performance period. We then compare our TSR with the total stockholder returns achieved by our peers over the same three-year period and determine our ranking.
2015 Executive Retention / Retirement Program Restricted Share Unit Grants
In December 2015, the HR Committee approved performance-based ERRP restricted share unit grants. These restricted share unit awards are subject to a five-year performance and five-year cliff vesting period and, once vested, will be paid out in shares of the company’s common stock over a five-year period after a recipient has separated from service with the company.
Our overall compensation program does not provide any non-performance-based supplemental executive retirement benefit. The HR Committee designed and implemented the ERRP in lieu of a traditional supplemental executive retirement plan which is not performance-based but is offered by many of our peers and other companies to increase overall competitiveness. The ERRP restricted share units help to achieve our compensation philosophy of being market competitive while aligning the interests of our executives and stockholders. It also promotes retention through the five-year cliff vesting component and benefits succession planning and continuity of our strategic plan through its five-year payout following separation from service.
The long-term equity opportunity for the ERRP is derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the value of each executive officer’s ERRP restricted share unit award, the HR Committee considered the range for comparable roles within our peer group, with consideration given to each position’s strategic value, and the overall long-term equity opportunity offered to that group. For 2015, the HR Committee reviewed the equity incentive opportunities provided to our peer group to analyze whether the targeted ERRP restricted share unit awards to our executive officers approximated the market median. Based on its review, the HR Committee determined that no changes were required for the 2015 ERRP restricted share unit awards.
The equity opportunities for the 2015 ERRP restricted share unit grants to our named executive officers and the 2014 ERRP target opportunity are shown in the table below. Each executive officer’s award value was then converted into specific equity grants by dividing the total potential value of the award by the fair market value of a share of our stock on the grant date. This represents the number of restricted share units that will vest on December 31, 2020, if the company’s net income for three of the five calendar years 2016 – 2020 exceeds the company’s net income for 2015. If earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the fair value of the award on the grant date, as reflected in the following table, which is based on the closing market price of our stock on the grant date, less the present value of expected dividends.
|
|
Compensation Discussion & Analysis |
|
| | | | | | | | | | |
| | | | 2015 Target ERRP Opportunity |
Name | | 2014 Base Salary (%) | | 2015 Base Salary (%) | | Value at Grant Date ($) | | ERRP Stock Awards (1) (#) |
Robert C. Rowe | | 50.0 | | 50.0 | | 289,116 |
| | 6,458 |
|
Brian B. Bird | | 25.0 | | 25.0 | | 99,988 |
| | 2,233 |
|
Heather H. Grahame | | 20.0 | | 20.0 | | 70,042 |
| | 1,564 |
|
Curtis T. Pohl | | 20.0 | | 20.0 | | 54,354 |
| | 1,214 |
|
Bobbi L. Schroeppel | | 15.0 | | 15.0 | | 37,583 |
| | 839 |
|
| |
(1) | Based on a grant date fair value of $44.77, which was calculated using the closing stock price of $54.35 on December 9, 2015, less the present value of expected dividends, calculated using a 1.64 percent five-year Treasury rate and assuming quarterly dividends of $0.50 for the five-year vesting period. |
Vesting of 2013 Long-Term Incentive Program Performance Unit Grants in 2015
In February 2013, the HR Committee approved grants of LTIP performance units, subject to a three-year performance period. The 2013 LTIP performance unit grants vested on December 31, 2015.
The 2013 LTIP performance unit grants contained both market- and performance-based components. The performance goals were independent of each other and equally weighted. The following table summarizes the performance measures which governed these 2013 grants.
|
| | | | | | | | | | | | |
Performance Measures — 2013-2015 | | Threshold | | Target | | Maximum | | Actual |
Financial Goals – 50% | | | | | | | | |
ROAE | | 8.3 | % | | 9.8 | % | | 11.3 | % | | 10.1 | % |
Average Net Income Growth | | — | % | | 3.0 | % | | 6.0 | % | | 16.4 | % |
Market Goal – 50% | | | | | | | | |
Relative TSR Average vs. Peers | | 13th |
| | 6th |
| | 1st |
| | 2nd |
|
Depending upon actual company performance relative to these performance goals, the exact number of shares that could have vested ranged from zero to 200 percent of the target award. As summarized above in the 2015 LTIP Performance Unit Grants section, our relative TSR metrics are established at levels higher than our peers according to a market analysis conducted by the HR Committee’s independent compensation consultant. At the conclusion of the performance period, the HR Committee calculated the company’s performance relative to these goals during the three-year performance period to determine the vesting percentage for the 2013 LTIP performance unit grants.
During the performance period, for the financial goals, ROAE was 10.1 percent and average net income growth was 16.4 percent. This financial performance resulted in a 154.5 percent vesting percentage for that half of the program. For our market goal, TSR was 67.4 percent, resulting in a ranking of second with respect to our peers, and contributing 180.0 percent with respect to that half of the program.
For purposes of our LTIP, we calculate TSR by comparing the average closing price for a share of common stock of us and our peers during the period beginning 10 days prior to the
filingend of the
Company's Definitive Proxy
Statement.
THE CLASS I AND CLASS II MEMBERS OF YOUR BOARD OF DIRECTORS
RECOMMENDS A VOTE"FOR" THE ELECTION OF THESE NOMINEES.
12
Continuing Directorsperformance period and ending 10 days after the performance period plus the cumulative dividends earned during the performance period, to the average closing price of a share of common stock of us and our peers during the period beginning 10 days prior to the start of the performance period and ending 10 days after the start of the performance period. Our HR Committee believes that calculating relative TSR using the 20-day average share price around the beginning and end of the performance period results in a more accurate reflection of return for the period that is less impacted by stock market activity on the first and last days of the performance period. Based on the HR Committee’s calculation of these performance measures, the 2013 LTIP performance unit grants vested at 167.3 percent. The following information is furnishedtable summarizes the performance results with respect to the other
directors in Class I whose terms will expire in May 2004:
Age on
Director June 1,
Director Principal Occupation or Employment Since 2003
- ----------------------------- ---------------------------------------------------------------------------- ------------- ----------
Randy G. Darcy............... Senior Vice President, Operations of General Mills, Inc. (NYSE: GIS) a 1998 52
consumer foods company, since 1987.
Gary G. Drook................ Chief Executive Officer of NorthWestern since January 2003; formerly 1998 58
President and Chief Executive Officer and Director of AFFINA, The Customer
Relationship Company (formerly Ruppman Marketing Technologies, Inc.), a
provider of customer services programs (1997-2003); President of Network
Services (1994-1995) for Ameritech Corporation, a communications services
provider.
Bruce I. Smith............... Attorney and partner in the law firm of Leininger, Smith, Johnson, Baack, 1989 61
Placzek, Steele & Allen since 1978.
Continuing Directors
The following information is furnished with respect to directors in Class II
whose terms will expire in May 2005:
Age on
Director June 1,
Director Principal Occupation or Employment Since 2003
- ----------------------------- ---------------------------------------------------------------------------- ------------- ----------
Jerry W. Johnson............. Visiting Scholar, Congressional Budget Office, U.S. Congress since 1994 62
June 2002; former Dean Emeritus (2001-2002), Dean and Professor of
Economics (1990-2001), School of Business, University of South Dakota;
Member of the Boards of Directors of Citibank (S.D.), N.A., Citibank FSB
and Citibank USA.
Larry F. Ness................ Chairman and Chief Executive Officer of First Dakota Financial Corp., a 1991 58
bank holding company, and of First Dakota National Bank since 1996;
formerly Vice Chairman and Chief Executive Officer of that bank (1993-1996).
13
PROPOSAL THREE:
RATIFICATION OF AUDITORS
The Board has selected Deloitte & Touche LLP ("Deloitte"), independent
auditors, to audit the financial statementseach of the Companyperformance measures applicable to the 2013 LTIP performance unit grants and the corresponding contributions to the vesting percentage. |
| | | | | | | | | |
Performance Measures — 2013-2015 | | Result | | Weight | | Vesting |
Financial Goals – ROAE and Average Net Income Growth | | 154.5 | % | | 50 | % | | 77.3 | % |
Market Goal – TSR | | 180.0 | % | | 50 | % | | 90.0 | % |
| | | | TOTAL |
| | 167.3 | % |
|
|
Compensation Discussion and Analysis |
The following table summarizes the number of shares awarded for the 2013 LTIP performance unit grants and the number of shares paid out in 2015 with respect to such grants for our named executive officers, based on the 167.3% percent vesting percentage approved by the HR Committee.
|
| | | | | | | | |
| | Vesting of 2013 Performance Unit Grants |
Name | | Units at Grant Date (#) | | Vesting Percentage (%) | | Units upon Vesting (#) |
Robert C. Rowe | | 17,261 |
| | 167.3% | | 28,878 |
|
Brian B. Bird | | 7,700 |
| | 167.3% | | 12,882 |
|
Heather H. Grahame | | 4,946 |
| | 167.3% | | 8,275 |
|
Curtis T. Pohl | | 3,894 |
| | 167.3% | | 6,515 |
|
Bobbi L. Schroeppel | | 2,395 |
| | 167.3% | | 4,007 |
|
Other Compensation Policies
Stock Ownership Guidelines
Our Corporate Governance Guidelines require our executive officers to meet and maintain a specified stock ownership level. Stock ownership guidelines range from a multiple of six times base salary for the CEO, four times base salary for the CFO, three times base salary for our Vice President and General Counsel and our Vice President - Distribution, and two times base salary for our Vice President - Customer Care, Communications and Human Resources. Each executive is restricted, absent a hardship and prior Board approval, from selling stock until his or her guideline amount is achieved and must continue to maintain the required ownership level once it is obtained. More specific details of our officer stock ownership guidelines are available in our Corporate Governance Guidelines located on our website at www.northwesternenergy.com under Our Company / Investor Relations / CorporateGovernance.
Our Board instituted these guidelines to require our executives to hold a meaningful financial stake in the company to align our executive’s interests with those of our stockholders. As summarized below, all of our named executive officers have satisfied the applicable stock ownership guideline, as have our other executive officers.
|
| | | | | | | | |
Name | | Multiple of Base Pay | | Percent of Guideline Achieved as of December 31 (1) |
2014 | | 2015 |
Robert C. Rowe | | 6x | | 215 | % | | 230 | % |
Brian B. Bird | | 4x | | 240 | % | | 201 | % |
Heather H. Grahame | | 3x | | 167 | % | | 161 | % |
Curtis T. Pohl | | 3x | | 138 | % | | 142 | % |
Bobbi L. Schroeppel | | 2x | | 229 | % | | 205 | % |
| |
(1) | Percent of guideline achieved uses the closing stock prices of $56.58 and $54.25 as of December 31, 2014, and 2015, respectively. |
Retirement and Other Benefits
Retirement benefits are offered to employees hired prior to January 1, 2009, through tax-qualified company-funded pension plans and to all eligible employees through a 401(k) defined contribution plan. Both pension plans and 401(k) plans are common benefits provided in the utility and energy industry. Our executive officers, including the CEO, participate in some or all of these plans, and the terms governing the retirement benefits under these plans are the same as those available to substantially all employees. We do not offer any supplemental retirement benefits to our executive officers other than the performance-based ERRP restricted share units described above. Our healthcare, insurance, and other welfare and employee-benefit programs are generally the same for substantially all employees, including the CEO and executive officers. We share the cost of health and welfare benefits with our employees, which is dependent on the benefit coverage option that each employee elects. Our executive officers do not receive any material perquisites or special benefits that differ materially from those available to employees generally.
|
|
Compensation Discussion & Analysis |
Severance and Post-Termination Benefits
We provide severance and post-termination benefits to our executive officers under our severance plan. Severance and post-termination benefits are explained in detail under the “Compensation of Executive Officers and Directors—Post Employment Compensation” section, starting on page 47 of this proxy statement.
Non-qualified Deferred Compensation
The company provides a non-qualified deferred compensation plan, which is intended to be an unfunded plan. The 2009 Officer Deferred Compensation Plan (officer deferred plan) allows eligible officers to defer up to 100 percent of certain compensation, including base salary (subject to compliance with Section 409A of the Internal Revenue Code compensation limit), short-term incentive awards and awards earned under our Equity Compensation Plan. There are no company contributions to the officer deferred plan. Participants in the officer deferred plan may elect to have deferrals credited to their account in company stock (in the form of deferred share units issued under the Equity Compensation Plan) or cash investment options that substantially mirror the qualified employee 401(k) plan investment options. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses, and dividends associated with the designated investments. Officer deferred plan participants do not pay income taxes on amounts deferred or earnings thereon until those amounts are distributed from the officer deferred plan. A participant’s benefits under the officer deferred plan are fully vested and are payable after terminating employment. Benefits are paid in a lump sum unless a participant elects annual installments.
No Employment Agreements
We currently do not have employment agreements with any of our executives. We generally believe that ongoing employment agreements are not necessary to retain talented executives; however, agreements may be appropriate on a case-by-case basis, such as when an executive begins employment with us. Due to the changing marketplace in which we compete for talent, the HR Committee regularly reviews this practice to help ensure that we remain competitive in our industry.
Tax Treatment of Certain Compensation
Section 162(m) of the Internal Revenue Code limits the company deductibility of executive compensation paid to certain named executive officers to $1 million per year, ending
December 31, 2003, and recommendsbut contains an exception for certain performance-based compensation. Compensation that qualifies as “performance-based compensation” is not subject to the $1 million deduction limit if, at least every five years, stockholders vote for ratificationapprove the material terms of such appointment. Although actionperformance-based compensation. The Equity Compensation Plan is structured to enable grants of equity-based incentive awards to be deductible under Section 162(m), and the material terms of the Equity Compensation Plan were approved by stockholders isat last year’s annual meeting. The HR Committee generally seeks ways to limit the impact of Section 162(m). However, the HR Committee believes that the tax deduction limitation should not compromise our ability to establish and implement incentive programs that support the compensation objectives discussed above. Accordingly, achieving these objectives and maintaining required by law,flexibility in this regard may result in payments of compensation or grants of awards that are not deductible for federal income tax purposes. In 2014, we incurred compensation for our Named Executive Officers of approximately $118,000 that may not be tax deductible for tax purposes.
Compensation Committee Report
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board has determined that it is desirable to request approval of this selection
by the stockholders. Notwithstanding the selection, the Board, in its
discretion, may direct the appointment of new independent auditors at any time
during the year, if the Board feels that such a change wouldCompensation Discussion and Analysis be included in the best
interest ofproxy statement and incorporated by reference into the Company and its stockholders. In the event of a negative vote on
ratification, the Board will reconsider its selection.
Auditors
Since May 16, 2002, Deloitte has been NorthWestern's independent
auditors. Arthur Andersen LLP ("Arthur Andersen"), certified public accountants,
were the independent auditors of NorthWestern from 1932 until May 16, 2002.
During that time, Arthur Andersen audited NorthWestern's financial statements
annually.
Effective as of May 16, 2002, NorthWestern dismissed Arthur Andersen as
its independent auditors. NorthWestern's Audit Committee recommended the
dismissal of Arthur Andersen, and the entire Board of NorthWestern participated
in and approved such dismissal. Effective as of the same date, NorthWestern
engaged Deloitte as its new independent auditors. NorthWestern's Audit Committee
recommended this action, which was approved unanimously by its Board. The Board
also engaged Deloitte to re-audit the Company's 2001 financial statements.
The reports of Arthur Andersen on NorthWestern's financial statements
for fiscal years 2000 and 2001 contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with NorthWestern's audits for fiscal years
2000 and 2001 and through May 16, 2002, there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Arthur Andersen, would have caused them to
make reference thereto in their report on the financial statements for such
years. During fiscal years 2000 and 2001 and through June 11, 2002, there had
been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K
under the Securities Act of 1933, as amended). The Company provided Arthur
Andersen with a copy of these disclosures and Arthur Andersen provided the
Company with a letter addressed to the Securities and Exchange Commission, dated
May 16, 2002, stating its agreement with such statements. A copy of Arthur
Andersen's May 16 letter was filed as an exhibit to the Company's current reportAnnual Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2002
reporting the change in certifying accountant.
During fiscal years 2000 and 2001 and through May 16, 2002,
NorthWestern had not consulted with Deloitte regarding either:
o the application of accounting principles to a specified
transaction, either completed or proposed; or the type of
audit opinion that might be rendered on NorthWestern's
financial statements, and either a written report was provided
to NorthWestern or oral advice was provided that Deloitte
concluded was an important factor considered by NorthWestern
in reaching a decision as to the accounting, auditing of
financial reporting issue; or
o any matter that was either the subject of a disagreement, as
that term is defined in Item 304(a)(1)(iv) of Regulation S-K
under the Securities Act and the related instructions to Item
304 of Regulation S-K under the Securities Act, or a
reportable event, as that term is defined in Item 304(a)(1)(v)
of Regulation S-K under the Securities Act.
Representatives of Deloitte plan to attend the Annual Meeting and will
be available to answer questions and, although they do not expect to do so, they
will have the opportunity to make a statement if they so desire.
Audit Fees. For10-K for the year ended December 31, 2002, Deloitte billed
NorthWestern $3,930,391,2015.
Human Resources Committee
Dana J. Dykhouse, Chair
Stephen P. Adik
Dorothy M. Bradley
Julia L. Johnson
Compensation of Executive Officers and Directors
The following tables, footnotes, and narratives provide information regarding the compensation, benefits, and equity holdings in the company for the named executive officers during the years ended December 31, 2015, 2014, and 2013. Please see the CD&A on the previous pages for a description of our executive compensation program necessary to gain an understanding of the information disclosed below.
2015 Summary Compensation Table
The following table sets forth the compensation earned during 2015, 2014, and 2013 for services relatedin all capacities by the named executive officers:
|
| | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards (1) ($) | | Non-Equity Incentive Plan Compensation (2) ($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) ($) | | All Other Compen- sation (4) ($) | | Total ($) |
Robert C. Rowe | | 2015 | | 573,567 |
| | — |
| | 1,131,121 |
| | 370,068 |
| | 39,285 |
| | 41,564 |
| | 2,155,605 |
|
President and | | 2014 | | 556,924 |
| | — |
| | 1,098,234 |
| | 561,389 |
| | 104,139 |
| | 22,155 |
| | 2,342,841 |
|
Chief Executive Officer | | 2013 | | 540,764 |
| | — |
| | 666,183 |
| | 470,913 |
| | 26,461 |
| | 20,577 |
| | 1,724,898 |
|
Brian B. Bird | | 2015 | | 391,181 |
| | — |
| | 468,227 |
| | 159,981 |
| | 9,264 |
| | 49,677 |
| | 1,078,330 |
|
Vice President and | | 2014 | | 365,351 |
| | — |
| | 422,840 |
| | 230,175 |
| | 32,002 |
| | 49,005 |
| | 1,099,373 |
|
Chief Financial Officer | | 2013 | | 354,749 |
| | — |
| | 281,088 |
| | 193,079 |
| | — |
| | 43,055 |
| | 871,971 |
|
Heather H. Grahame | | 2015 | | 346,032 |
| | — |
| | 304,597 |
| | 126,075 |
| | — |
| | 48,360 |
| | 825,064 |
|
Vice President and | | 2014 | | 332,462 |
| | — |
| | 278,547 |
| | 188,509 |
| | — |
| | 46,629 |
| | 846,147 |
|
General Counsel | | 2013 | | 322,815 |
| | — |
| | 184,382 |
| | 140,558 |
| | — |
| | 44,903 |
| | 692,658 |
|
Curtis T. Pohl | | 2015 | | 269,577 |
| | | | 212,661 |
| | 86,966 |
| | 5,814 |
| | 59,702 |
| | 634,720 |
|
Vice President - | | 2014 | | 261,754 |
| | — |
| | 206,470 |
| | 131,927 |
| | 64,786 |
| | 62,079 |
| | 727,016 |
|
Retail Operations | | 2013 | | 254,159 |
| | — |
| | 145,163 |
| | 110,665 |
| | — |
| | 48,646 |
| | 558,633 |
|
Bobbi L. Schroeppel | | 2015 | | 248,530 |
| | — |
| | 134,849 |
| | 70,154 |
| | 5,012 |
| | 49,823 |
| | 508,368 |
|
Vice President - Customer | | | | | | | | | |
|
| | | | | |
|
|
Care, Comm. and HR | | Ms. Schroeppel did not meet the criteria in 2013 or 2014 to be included as a named executive officer. |
| |
(1) | These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. The values in the table above assume 100 percent payout based on grant date fair value. The exact number of shares issued will vary from zero to 200 percent of the target award, depending on actual company performance relative to the performance goals. See Note 16 to the consolidated financial statements in our 2015 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The value of awards for each named executive officer assuming a maximum payout based on grant date fair value would be $1,973,117 for Mr. Rowe; $836,484 for Mr. Bird; $539,174 for Ms. Grahame; $370,970 for Mr. Pohl; and $232,137 for Ms. Schroeppel. |
| |
(2) | The Non-Equity Incentive Plan Compensation column reflects cash incentive awards earned pursuant to our annual incentive plan as previously described. These awards are earned during the year reflected and paid in the following fiscal year. |
| |
(3) | These amounts are attributable to a change in the value of each named executive officer’s defined benefit pension account balances and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings and actuarial assumptions. Our pension plans were closed prior to Ms. Grahame joining the company; therefore, she is not eligible to participate in a pension plan. |
| |
(4) | The table on the top of the following page identifies the items included in the All Other Compensation column for 2015. Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision, employee assistance plan and health savings account), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis. Life insurance also includes imputed income consistent with IRS guidelines for coverage amounts in excess of $50,000 for each of the named executive officers. Mr. Rowe’s and Mr. Pohl’s other income for 2015 is from vacation sold back to the company at a rate of 75 percent. |
|
| | | | | | | | | | | | | | | | | | | | |
| | Health Benefits | | Life Insurance | | 401(k) Contributions | | Other Income | | Total All Other Compensation |
Robert C. Rowe | | $ | 7,299 |
| | $ | 6,014 |
| | $ | 10,600 |
| | $ | 17,651 |
| | $ | 41,564 |
|
Brian B. Bird | | 21,200 |
| | 1,977 |
| | 26,500 |
| | — |
| | 49,677 |
|
Heather H. Grahame | | 18,384 |
| | 3,476 |
| | 26,500 |
| | — |
| | 48,360 |
|
Curtis T. Pohl | | 18,708 |
| | 4,233 |
| | 29,150 |
| | 7,611 |
| | 59,702 |
|
Bobbi L. Schroeppel | | 21,200 |
| | 2,123 |
| | 26,500 |
| | — |
| | 49,823 |
|
|
|
Compensation of Executive Officers and Directors |
2015 Grants of Plan-Based Awards
The following table shows the range of each named executive officer’s annual and long-term incentive award opportunities granted for the fiscal year ended December 31, 2015. The narrative following the table describes the terms of each incentive award opportunity.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Grant Date | | Estimated Future Payouts Under Non-equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards (1) | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | Grant Date Fair Value of Stock Awards (2) ($) |
Threshold ($) | | Target ($) | | Maximum ($) | Threshold (#) | | Target (#) | | Maximum (#) | |
Robert C. Rowe | | | | | | | | | | | | | | | | | | |
Annual Cash Incentive | | — |
| | 231,292 |
| | 462,585 |
| | 693,877 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Units | | 2/11/2015 |
| | — |
| | — |
| | — |
| | — |
| | 19,828 |
| | 39,656 |
| | — |
| | 841,996 |
|
Restricted Share Units | | 12/9/2015 |
| | — |
| | — |
| | — |
| | — |
| | 6,458 |
| | 6,458 |
| | — |
| | 289,125 |
|
Brian B. Bird | | | | | | | | | | | | | | | | | | |
Annual Cash Incentive | | — |
| | 99,988 |
| | 199,976 |
| | 299,964 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Units | | 2/11/2015 |
| | — |
| | — |
| | — |
| | — |
| | 8,672 |
| | 17,344 |
| | — |
| | 368,256 |
|
Restricted Share Units | | 12/9/2015 |
| | — |
| | — |
| | — |
| | — |
| | 2,233 |
| | 2,233 |
| | — |
| | 99,971 |
|
Heather H. Grahame | | | | | | | | | | | | | | | | |
Annual Cash Incentive | | — |
| | 78,797 |
| | 157,594 |
| | 236,390 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Units | | 2/11/2015 |
| | — |
| | — |
| | — |
| | — |
| | 5,524 |
| | 11,048 |
| | — |
| | 234,577 |
|
Restricted Share Units | | 12/9/2015 |
| | — |
| | — |
| | — |
| | — |
| | 1,564 |
| | 1,564 |
| | — |
| | 70,020 |
|
Curtis T. Pohl | | | | | | | | | | | | | | | | | | |
Annual Cash Incentive | | — |
| | 54,354 |
| | 108,708 |
| | 163,061 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Units | | 2/11/2015 |
| | — |
| | — |
| | — |
| | — |
| | 3,728 |
| | 7,456 |
| | — |
| | 158,310 |
|
Restricted Share Units | | 12/9/2015 |
| | — |
| | — |
| | — |
| | — |
| | 1,214 |
| | 1,214 |
| | — |
| | 54,351 |
|
Bobbi L. Schroeppel | | | | | | | | | | | | | | | | | | |
Annual Cash Incentive | | — |
| | 43,846 |
| | 87,693 |
| | 131,539 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Units | | 2/11/2015 |
| | — |
| | — |
| | — |
| | — |
| | 2,291 |
| | 4,582 |
| | — |
| | 97,287 |
|
Restricted Share Units | | 12/9/2015 |
| | — |
| | — |
| | — |
| | — |
| | 839 |
| | 839 |
| | — |
| | 37,562 |
|
| |
(1) | Reflects possible payout range of 2015 performance units and restricted share units awards. The performance units granted on February 11, 2015, have a weighted average grant date fair value of $42.47. The restricted share units granted on December 9, 2015, have a weighted average grant date fair value of $44.77. |
| |
(2) | These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. The values in the table above reflect grant date fair value assuming payment at target. See Note 16 to the consolidated financial statements in our 2015 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. |
Non-equity Incentive Plan Awards
Non-equity incentive plan compensation includes amounts earned under the NorthWestern Energy 2015 Annual Incentive Plan for 2015 performance, which were paid in 2016. The HR Committee reviewed 2015 performance against plan targets and the plan achieved a payout of 80 percent, as discussed in the “Compensation Discussion and Analysis—Components of Executive Compensation for 2015—Annual Cash Incentive Awards” section, starting on page 27 of this proxy statement.
Equity Incentive Plan Awards
As previously discussed in the “Compensation Discussion and Analysis—2015 Compensation—Long-Term Incentive Plan Equity Awards” section in this proxy statement, the Board approved granting performance awards in 2015 under the Equity Compensation Plan. The values of stock awards included in the table above reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. For the 2015 performance unit awards, the exact number of shares issued upon vesting will vary from zero to 200 percent of the target award, depending on actual
|
|
Compensation of Executive Officers and Directors |
company performance relative to the auditperformance goals. In addition, if earned, the value of a performance unit award and a restricted share unit award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the value on the grant date, which is based on the fair market value of a share of our stock and, with respect to a performance unit award, is based on the target amount for such award. See Note 16 to the consolidated financial statements in our 2015 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards.
Percentage of Salary Compared to Total Compensation
For 2015, “Salary” for the named executive officers accounted for approximately 26 percent to 53 percent of total direct compensation (i.e., salary plus targeted annual and long-term incentive compensation), while incentive compensation accounted for approximately 47 percent to 74 percent of total direct compensation, assuming achievement of a target level of performance for each named executive officer.
2015 Stock Vested
The table below shows the dollar amounts realized pursuant to the vesting of equity-based awards during the last fiscal year.
|
| | | | | | |
| | Stock Awards |
Name | | Number of Shares Acquired on Vesting (#) (1) | | Value Realized on Vesting ($) |
Robert C. Rowe | | 28,878 |
| | 1,566,632 |
|
Brian B. Bird | | 12,882 |
| | 698,849 |
|
Heather H. Grahame | | 8,275 |
| | 448,919 |
|
Curtis T. Pohl | | 6,515 |
| | 353,439 |
|
Bobbi L. Schroeppel | | 3,891 |
| | 211,087 |
|
| |
(1) | Shares vested consist of performance units for the 2013- 2015 performance period that vested on December 31, 2015, at a performance level of 167.3 percent. We determined the value realized for the vesting of these shares using the fair market value of our common stock on the vesting date, which was $54.25. |
|
|
Compensation of Executive Officers and Directors |
Outstanding Equity Awards at 2015 Fiscal Year-End
The following table contains information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to the awards for each named executive officer. Dividends are not paid or accrued on any unvested shares.
|
| | | | | | | | |
Name | | Grant Date | | |
Performance-Based Shares |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (1) (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) (2) (3) ($) |
Robert C. Rowe | | 12/9/2015 | | 6,458 |
| | 350,347 |
|
| | 2/11/2015 | | 39,656 |
| | 2,151,338 |
|
| | 12/16/2014 | | 6,410 |
| | 347,743 |
|
| | 2/18/2014 | | 42,658 |
| | 2,314,197 |
|
| | 12/10/2013 | | 3,878 |
| | 210,382 |
|
| | 12/12/2012 | | 3,814 |
| | 206,910 |
|
| | 12/5/2011 | | 3,667 |
| | 198,935 |
|
Brian B. Bird | | 12/9/2015 | | 2,233 |
| | 121,140 |
|
| | 2/11/2015 | | 17,344 |
| | 940,912 |
|
| | 12/16/2014 | | 2,103 |
| | 114,088 |
|
| | 2/18/2014 | | 17,258 |
| | 936,247 |
|
| | 12/10/2013 | | 1,272 |
| | 69,006 |
|
| | 12/12/2012 | | 1,251 |
| | 67,867 |
|
| | 12/5/2011 | | 1,203 |
| | 65,263 |
|
Heather H. Grahame | | 12/9/2015 | | 1,564 |
| | 84,847 |
|
| | 2/11/2015 | | 11,048 |
| | 599,354 |
|
| | 12/16/2014 | | 1,531 |
| | 83,057 |
|
| | 2/18/2014 | | 11,036 |
| | 598,703 |
|
| | 12/10/2013 | | 926 |
| | 50,236 |
|
| | 12/12/2012 | | 911 |
| | 49,422 |
|
| | 12/5/2011 | | 876 |
| | 47,523 |
|
Curtis T. Pohl | | 12/9/2015 | | 1,214 |
| | 65,860 |
|
| | 2/11/2015 | | 7,456 |
| | 404,488 |
|
| | 12/16/2014 | | 1,205 |
| | 65,371 |
|
| | 2/18/2014 | | 8,020 |
| | 435,085 |
|
| | 12/10/2013 | | 729 |
| | 39,548 |
|
| | 12/12/2012 | | 717 |
| | 38,897 |
|
| | 12/5/2011 | | 689 |
| | 37,378 |
|
Bobbi L. Schroeppel | | 12/9/2015 | | 839 |
| | 45,516 |
|
| | 2/11/2015 | | 4,582 |
| | 248,574 |
|
| | 12/16/2014 | | 833 |
| | 45,190 |
|
| | 2/18/2014 | | 4,790 |
| | 259,858 |
|
| | 12/10/2013 | | 490 |
| | 26,583 |
|
| | 12/12/2012 | | 482 |
| | 26,149 |
|
| | 12/5/2011 | | 456 |
| | 24,738 |
|
| |
(1) | The performance units granted in February 2014 and 2015 will vest, if at all, on December 31, 2016 and 2017, respectively, subject to the satisfaction of the applicable performance and market criteria and generally subject to the recipient’s continued employment through such date. Based on performance through December 31, 2015, we are above target for obtaining payout of the 2014 grants. The number of units and payout value shown for the 2014 and 2015 grants assume a maximum level of performance (200 percent), as required by the SEC’s disclosure rules. |
| |
(2) | Values were calculated based on a $54.25 closing price of our common stock on December 31, 2015. |
| |
(3) | The performance-based restricted share units granted under the ERRP in December 2011, 2012, 2013, 2014, and 2015 will vest, if at all, on December 31, 2016, 2017, 2018, 2019, and 2020, respectively, subject to the satisfaction of the applicable performance criteria and generally subject to the recipient’s continued employment through such date. |
|
|
Compensation of Executive Officers and Directors |
Post-Employment Compensation
2015 Pension Benefits
We have two separate defined benefit pension plans that cover employees hired prior to January 1, 2009. The NorthWestern Energy Pension Plan is applicable to employees who began their employment in Montana, and the NorthWestern Pension Plan is applicable to employees who began their employment in South Dakota or Nebraska.
|
| | | | | | | | | | | |
Name | | Plan Name | | Number of Years Credited Service (#) | | Present Value of Accumulated Benefit ($) | | Payments During Last Fiscal Year ($) |
Robert C. Rowe | | NorthWestern Energy Pension Plan | | 7.00 |
| | 364,212 |
| | — |
|
Brian B. Bird | | NorthWestern Corporation Pension Plan | | 12.08 |
| | 170,263 |
| | — |
|
Heather H. Grahame (1) | | — | | — |
| | — |
| | — |
|
Curtis T. Pohl | | NorthWestern Corporation Pension Plan | | 29.39 |
| | 364,840 |
| | — |
|
Bobbi L. Schroeppel | | NorthWestern Corporation Pension Plan | | 17.63 |
| | 162,117 |
| | — |
|
| |
(1) | Ms. Grahame joined the company after the pension plans were closed to new entrants and therefore is not eligible to participate. |
|
| | | | | |
We calculated the present value of accumulated benefits assuming benefits commence at age 65 and using the discount rate, mortality assumption, and assumed payment form consistent with those disclosed |
in Note 15 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015. While we calculated the present values in the table above assuming that benefits commence at age 65, the table to the right summarizes the cash balance available if the individual had terminated service as of December 31, 2015. Under the NorthWestern Energy Pension Plan, a participant’s account grows based upon (1) contributions by the company made once per | | | | |
| Name | | Cash Balance ($) |
| Robert C. Rowe | | 268,897 |
|
| Brian B. Bird | | 163,682 |
|
| Heather H. Grahame | | — |
|
| Curtis T. Pohl | | 348,489 |
|
| Bobbi L. Schroeppel | | 152,702 |
|
| | | |
year, and (2) interest credits at the rate of six percent per year. Contribution rates range from three percent to 12 percent for compensation below the taxable wage base and from 1.5 percent to six percent for compensation above one-half of the taxable wage base. Upon termination of employment, an employee who is at least 50 years of age with five years of service may begin receiving a monthly annuity or defer receiving benefits until he or she is required to take a minimum distribution. |
Under the cash balance formula of the NorthWestern Corporation Pension Plan, a participant’s account grows based upon (1) annual pay credits, and (2) annual interest credits based on the average federal 30-year Treasury Bill rate for November of the preceding year. Pay credits range from three percent to 7.5 percent for compensation below the taxable wage base, and such amounts are doubled for compensation above the taxable wage base. Upon termination of employment, an employee, or if deceased, his or her beneficiary, may elect to receive a lump sum equal to the cash balance in the account, a monthly annuity if age 55 or greater, or defer receiving benefits until he or she is required to take a minimum distribution.
The plans were closed to new entrants on January 1, 2009. For both pension plans, credited years of service are based on actual hire date, and pensionable earnings include base pay only. Mercer Human Resources Consulting, the actuary for our pension plans, calculated the present value of accumulated benefits using participant data provided by us.
|
|
Compensation of Executive Officers and Directors |
Non-qualified Deferred Compensation Plan
As discussed in the “Compensation Discussion and Analysis—Other Compensation Policies—Non-qualified Deferred Compensation” section in this proxy statement, we implemented a deferred compensation plan in 2009. The following table provides information on the 2015 non-qualified deferred compensation of our named executive officers who participate in the plan.
|
| | | | | | | | | | | | | | | | | | | | |
| | Executive Contributions in 2015 (1) | | Registrant Contributions in 2015 | | Aggregate Earnings in 2015 | | Aggregate Withdrawals/ Distributions in 2015 | | Aggregate Balance on December 31, 2015 |
Robert C. Rowe (2) | | $ | 1,314,649 |
| | $ | — |
| | $ | 20,596 |
| | $ | — |
| | $ | 6,572,766 |
|
| |
(1) | All executive contributions in the last fiscal year are reported as compensation to such executive officer in the 2015 Summary Compensation Table on page 37. |
| |
(2) | Mr. Rowe’s aggregate contributions under the plan are $4,584,407, all of which were reported as compensation in the 2015 Summary Compensation Table or for prior years. |
Termination or Change in Control Arrangements
2008 Key Employee Severance Plan
Our named executive officers are participants in the 2008 Key Employee Severance Plan (2008 Severance Plan). The 2008 Severance Plan was reviewed by the HR Committee with recommendations from professional advisers and approved by the Board. The HR Committee believes that it is appropriate for us to have a severance plan to provide a consistent means of addressing severance situations.
The 2008 Severance Plan does not provide for change in control payments, but it does provide for the payment of severance benefits in the event an officer is terminated involuntarily without cause. Cause generally is defined in the 2008 Severance Plan as (1) fraud, misappropriation of corporate property or funds, or embezzlement; (2) malfeasance in office, misfeasance in office which is willful or grossly negligent, or nonfeasance in office which is willful or grossly negligent; (3) failure to comply with our Code of Conduct; (4) illegal conduct, gross misconduct, or dishonesty, in each case which is willful and results (or is reasonably likely to result) in substantial damage to the company; or (5) willful and continued failure by the employee to perform substantially his/her duties. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability.
The severance benefits payable under the 2008 Severance Plan consist of:
A lump-sum cash payment equal to annual base pay;
Reimbursement of Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums paid by the participant during the 12-month period following the participant’s termination date; and
$12,000 of outplacement services during the 12-month period following the participant’s termination date.
|
| | | | | | | | | | | | |
The table to the right shows the amount of potential cash severance that would have been payable, based on an assumed termination date of December 31, 2015, under the normal severance provisions of the 2008 Severance Plan, including the amount that each named executive officer would be entitled to be reimbursed |
for outplacement expenses and reimbursement of costs for continuing coverage and other benefits under our group health, dental, and life insurance plans. Severance benefits are not provided in connection with terminations for cause. | | | | | | | | | | |
| Name | | Base Salary ($) | | COBRA Premiums ($) (1) | | Outplacement Services ($) | | Amount of Potential Severance Benefit ($) |
| Robert C. Rowe | | 578,231 |
| | 6,042 |
| | 12,000 | | 596,273 |
| Brian B. Bird | | 399,952 |
| | 19,566 |
| | 12,000 | | 431,518 |
| Heather H. Grahame | | 350,208 |
| | 21,560 |
| | 12,000 | | 383,768 |
| Curtis T. Pohl | | 271,769 |
| | 13,597 |
| | 12,000 | | 297,366 |
| Bobbi L. Schroeppel | | 250,551 |
| | 20,051 |
| | 12,000 | | 282,602 |
| (1) Amounts calculated using COBRA premiums in effect as of December 31, 2015. |
|
|
Compensation of Executive Officers and Directors |
Equity Compensation Plan Change in Control Provision
All outstanding equity awards were granted under our Equity Compensation Plan. The Equity Compensation Plan, in a change in control situation, provides that either the vesting of awards shall accelerate so that awards shall vest as to the shares that otherwise would have been unvested, or the HR Committee shall arrange or otherwise provide for the payment of cash or other consideration to participants in exchange for the satisfaction and cancellation of outstanding awards.
The table below shows the amount of potential stock value that would have been received, based on an assumed change in control date of December 31, 2015, outstanding equity awards at target payout, and a closing stock price on December 31, 2015, of $54.25. For a termination of service that does not involve a change in control, death, disability, or retirement, all outstanding equity awards granted under the Equity Compensation Plan are forfeited.
|
| | | |
Name | | Value of Accelerated Stock Vesting ($) |
Robert C. Rowe | | 3,547,082 |
|
Brian B. Bird | | 1,375,943 |
|
Heather H. Grahame | | 914,113 |
|
Curtis T. Pohl | | 666,841 |
|
Bobbi L. Schroeppel | | 422,391 |
|
ERRP Restricted Share Units
Awards under our ERRP, as discussed in the “Compensation Discussion and Analysis—Other Compensation Policies—Long-Term Performance-Based Equity Awards under the Equity Compensation Plan” section in this proxy statement, if earned, will be paid out in shares of common stock of the company over a five-year period following the participant’s separation of service with the company.
Death and Disability Benefits
Our executives are covered by the standard death and disability benefits that are available to substantially all employees. In addition, upon the death or disability of a recipient of a performance unit award, such recipient (or his or her executor or administrator) is entitled to receive a pro rata portion of the award based on the number of full months such recipient was employed by the company, and the remaining portion of the award is forfeited. An award under the ERRP vests in full upon the death or disability of the recipient.
Assuming that our Named Executive Officers terminated their employment as a result of death, disability or retirement on December 31, 2015, each executive officer would have received the same payout of the earned annual cash incentive award for 2015 that is set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 37. Similarly, each executive officer would have received the same payout of long-term incentive compensation for the LTIP performance units whose three-year performance period ended December 31, 2015 as reflected in the Stock Awards - Value Realized on Vesting column in the 2015 Stock Vested Table on page 39. The reason for the same payouts is that the individual would have been employed throughout the entire performance period for the awards.
|
|
Compensation of Executive Officers and Directors |
For the remaining outstanding grants of LTIP performance units and for the outstanding grants of ERRP restricted share units, the table that follows shows the original grants and the percentage of the original grants shares and the value of the grants the Named Executive Officers would have received, assuming that the executive officers terminated their employment as a result of death, disability or retirement on December 31, 2015, that the applicable goals for such performance units were subsequently satisfied at target levels and that the price of the Company's 2002
financial statements, re-auditCommon Stock was $54.25 (the closing price on December 31, 2015) at the time payouts of such performance units and restricted share units occurred.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Assumed 12/31/15 Death / Disability | | Assumed 12/31/15 Retirement |
Original Grant (#) | | Percent to Vest (%) | | Vesting Value ($) | | Original Grant (#) | | Percent to Vest (%) | | Vesting Value ($) |
Robert C. Rowe | | ERRP | | 12/31/2020 | | 6,458 |
| | 100.0 | % | | 350,347 |
| | 6,458 |
| | — | % | | — |
|
| | LTIP | | 12/31/2017 | | 19,828 |
| | 33.3 | % | | 358,556 |
| | 19,828 |
| | 33.3 | % | | 358,556 |
|
| | ERRP | | 12/31/2019 | | 6,410 |
| | 100.0 | % | | 347,743 |
| | 6,410 |
| | — | % | | — |
|
| | LTIP | | 12/31/2016 | | 21,329 |
| | 66.7 | % | | 771,398 |
| | 21,329 |
| | 66.7 | % | | 771,398 |
|
| | ERRP | | 12/31/2018 | | 3,878 |
| | 100.0 | % | | 210,382 |
| | 3,878 |
| | — | % | | — |
|
| | ERRP | | 12/31/2017 | | 3,814 |
| | 100.0 | % | | 206,910 |
| | 3,814 |
| | — | % | | — |
|
| | ERRP | | 12/31/2016 | | 3,667 |
| | 100.0 | % | | 198,935 |
| | 3,667 |
| | — | % | | — |
|
| | | | | | | | TOTAL |
| | $ | 2,444,271 |
| | | | TOTAL |
| | $ | 1,129,954 |
|
Brian B. Bird | | ERRP | | 12/31/2020 | | 2,233 |
| | 100.0 | % | | 121,140 |
| | 2,233 |
| | — | % | | — |
|
| | LTIP | | 12/31/2017 | | 8,672 |
| | 33.3 | % | | 156,819 |
| | 8,672 |
| | 33.3 | % | | 156,819 |
|
| | ERRP | | 12/31/2019 | | 2,103 |
| | 100.0 | % | | 114,088 |
| | 2,103 |
| | — | % | | — |
|
| | LTIP | | 12/31/2016 | | 8,629 |
| | 66.7 | % | | 312,082 |
| | 8,629 |
| | 66.7 | % | | 312,082 |
|
| | ERRP | | 12/31/2018 | | 1,272 |
| | 100.0 | % | | 69,006 |
| | 1,272 |
| | — | % | | — |
|
| | ERRP | | 12/31/2017 | | 1,251 |
| | 100.0 | % | | 67,867 |
| | 1,251 |
| | — | % | | — |
|
| | ERRP | | 12/31/2016 | | 1,203 |
| | 100.0 | % | | 65,263 |
| | 1,203 |
| | — | % | | — |
|
| | | | | | | | TOTAL |
| | $ | 906,265 |
| | | | TOTAL |
| | $ | 468,901 |
|
Heather H. Grahame | | ERRP | | 12/31/2020 | | 1,564 |
| | 100.0 | % | | 84,847 |
| | 1,564 |
| | — | % | | — |
|
| | LTIP | | 12/31/2017 | | 5,524 |
| | 33.3 | % | | 99,892 |
| | 5,524 |
| | 33.3 | % | | 99,892 |
|
| | ERRP | | 12/31/2019 | | 1,531 |
| | 100.0 | % | | 83,057 |
| | 1,531 |
| | — | % | | — |
|
| | LTIP | | 12/31/2016 | | 5,518 |
| | 66.7 | % | | 199,567 |
| | 5,518 |
| | 66.7 | % | | 199,567 |
|
| | ERRP | | 12/31/2018 | | 926 |
| | 100.0 | % | | 50,236 |
| | 926 |
| | — | % | | — |
|
| | ERRP | | 12/31/2017 | | 911 |
| | 100.0 | % | | 49,422 |
| | 911 |
| | — | % | | — |
|
| | ERRP | | 12/31/2016 | | 876 |
| | 100.0 | % | | 47,523 |
| | 876 |
| | — | % | | — |
|
| | | | | | | | TOTAL |
| | $ | 614,544 |
| | | | TOTAL |
| | $ | 299,459 |
|
Curtis T. Pohl | | ERRP | | 12/31/2020 | | 1,214 |
| | 100.0 | % | | 65,860 |
| | 1,214 |
| | — | % | | — |
|
| | LTIP | | 12/31/2017 | | 3,728 |
| | 33.3 | % | | 67,415 |
| | 3,728 |
| | 33.3 | % | | 67,415 |
|
| | ERRP | | 12/31/2019 | | 1,205 |
| | 100.0 | % | | 65,371 |
| | 1,205 |
| | — | % | | — |
|
| | LTIP | | 12/31/2016 | | 4,010 |
| | 66.7 | % | | 145,028 |
| | 4,010 |
| | 66.7 | % | | 145,028 |
|
| | ERRP | | 12/31/2018 | | 729 |
| | 100.0 | % | | 39,548 |
| | 729 |
| | — | % | | — |
|
| | ERRP | | 12/31/2017 | | 717 |
| | 100.0 | % | | 38,897 |
| | 717 |
| | — | % | | — |
|
| | ERRP | | 12/31/2016 | | 689 |
| | 100.0 | % | | 37,378 |
| | 689 |
| | — | % | | — |
|
| | | | | | | | TOTAL |
| | $ | 459,497 |
| | | | TOTAL |
| | $ | 212,443 |
|
Bobbi L. Schroeppel | | ERRP | | 12/31/2020 | | 839 |
| | 100.0 | % | | 45,516 |
| | 839 |
| | — | % | | — |
|
| | LTIP | | 12/31/2017 | | 2,291 |
| | 33.3 | % | | 41,429 |
| | 2,291 |
| | 33.3 | % | | 41,429 |
|
| | ERRP | | 12/31/2019 | | 833 |
| | 100.0 | % | | 45,190 |
| | 833 |
| | — | % | | — |
|
| | LTIP | | 12/31/2016 | | 2,395 |
| | 66.7 | % | | 86,619 |
| | 2,395 |
| | 66.7 | % | | 86,619 |
|
| | ERRP | | 12/31/2018 | | 490 |
| | 100.0 | % | | 26,583 |
| | 490 |
| | — | % | | — |
|
| | ERRP | | 12/31/2017 | | 482 |
| | 100.0 | % | | 26,149 |
| | 482 |
| | — | % | | — |
|
| | ERRP | | 12/31/2016 | | 456 |
| | 100.0 | % | | 24,738 |
| | 456 |
| | — | % | | — |
|
| | | | | | | | TOTAL |
| | $ | 296,224 |
| | | | TOTAL |
| | $ | 128,048 |
|
|
|
Compensation of Executive Officers and Directors |
2015 Director Compensation
Compensation to our non-employee directors consists of an annual cash retainer, an annual unrestricted stock award, an annual cash retainer for the chairperson of each committee of the 2001Board and meeting attendance fees. Non-employee directors are not eligible to participate in our retirement plans. The company also reimburses non-employee directors for the cost of participation in certain continuing education programs and the expense of traveling to Board and committee meetings. Employee directors are not compensated for service on the Board.
|
| | |
Non-employee directors may elect to defer up to 100 percent of any qualified cash or equity-based compensation that would be otherwise payable to them, subject to compliance with NorthWestern’s 2005 Deferred Compensation Plan for Non-employee Directors (director deferred plan) and Section 409A of the Internal Revenue Code. For those directors who defer their compensation under the director deferred plan, the meeting fee or retainer, as applicable, is the value utilized to determine the amount of deferred compensation. The deferred compensation may be invested in deferred stock units of the company’s common stock or in designated investment options that substantially | | |
| |
mirror the qualified employee 401(k) plan options. Our directors defer a significant portion of their total compensation each year into the company's common stock. For 2015, our directors, deferred 65 percent of the aggregate compensation paid to all directors into the company's common stock. |
Based on the election of the non-employee director, other than on account of death, he or she shall receive a distribution either in a lump sum or in approximately equal installments over a designated number of years (not to exceed ten years). Distributions of deferred share units will be equal to one share of the company’s common stock for each unit. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses, and dividends associated with the designated investments.
In 2014, the HR Committee asked Willis Towers Watson to update its review of the competitive market data concerning Board compensation from peer company comparisons so that the HR Committee could determine 2015 compensation levels for non-employee directors. Based upon this review, the HR Committee changed the annual retainer paid to the chair of our Governance Committee, increasing such amount to $10,000 from $6,000, to make it consistent with the retainers paid to the chair of our other committees. The HR Committee made no other changes to the compensation provided to our non-employee directors. Following is the rate schedule for non-employee director compensation for 2015.
|
| | | | | | |
| | Cash ($) | | Shares (#) |
Annual Board Retainer | | | | |
New Member Initial Stock Grant | | — |
| | 1,000 |
|
Board Chair | | 125,000 |
| | 3,750 |
|
Board Member | | 25,000 |
| | 2,750 |
|
Annual Committee Chairperson Retainer | | | | |
Audit Committee | | 10,000 |
| | — |
|
Governance and Innovation Committee | | 10,000 |
| | — |
|
Human Resources Committee | | 10,000 |
| | — |
|
Meeting Fees (1) | | | | |
Board Meeting | | 2,000 |
| | — |
|
Committee Meeting | | 2,000 |
| | — |
|
| |
(1) | The Board Chair does not receive meeting fees. |
|
|
Compensation of Executive Officers and Directors |
The following table sets forth the 2015 compensation received by our non-employee directors.
|
| | | | | | | | | |
Name | | Fees Earned or Paid in Cash (1) ($) | | Stock Awards (2) ($) | | Total ($) |
E. Linn Draper Jr., Board Chair | | 125,000 |
| | 216,600 |
| | 341,600 |
|
Stephen P. Adik | | 67,000 |
| | 158,840 |
| | 225,840 |
|
Dorothy M. Bradley | | 53,000 |
| | 158,840 |
| | 211,840 |
|
Dana J. Dykhouse | | 75,000 |
| | 153,780 |
| | 228,780 |
|
Jan R. Horsfall | | 33,000 |
| | 139,168 |
| | 172,168 |
|
Julia L. Johnson | | 65,500 |
| | 158,840 |
| | 224,340 |
|
Denton Louis Peoples | | 59,500 |
| | 158,840 |
| | 218,340 |
|
| |
(1) | Of the fees earned or paid in cash for 2015, amounts deferred under the deferred compensation plan described above included $125,000 for Mr. Draper; $32,000 for Mr. Adik; $5,000 for Ms. Bradley; $65,500 for Ms. Johnson; and $59,500 for Mr. Peoples. |
| |
(2) | The values for stock awards reflect the grant date fair value of annual stock awards described above. Grant date fair value is calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation. See Note 16 to the consolidated financial statements in our 2015 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The grant date fair value of annual stock awards made during 2015 was (a) $57.76 per share for Mr. Draper, Mr. Adik, Ms. Bradley, Ms. Johnson, and Mr. Peoples, (b) $55.92 for Mr. Dykhouse, and (c) $48.75 (for 1,850 shares) and $48.98 (for 1,000 shares) for Mr. Horsfall, who was elected and joined our Board on April 23, 2015. Mr. Draper, Mr. Adik, Ms. Bradley, Ms. Johnson, and Mr. Peoples deferred their 2015 stock awards under the deferred compensation plan described above. The total deferred share units outstanding as of December 31, 2015, are as follows: Mr. Draper – 104,874; Mr. Adik – 57,452; Ms. Bradley – 16,413; Ms. Johnson – 71,004; and Mr. Peoples – 39,850. |
Director Stock Ownership
|
| | |
We believe it is important that the interests of our Board members are aligned with the interests of our stockholders. Accordingly, we have robust stock ownership guidelines for our non-employee directors. Our stock ownership guidelines require each non-employee director to retain at least five times the value of his or her annual cash Board and committee chair retainer(s) in common stock or deferred stock units within five years of commencing service on our Board. | | |
Each of our directors has satisfied his or her stock ownership guideline requirements and has continued to increase his or her ownership level in excess of the requirements. As important as it was to achieve the required stock ownership levels, we and our Board believe it is equally significant that our non-employee directors have continued to retain and increase their stock ownership after meeting their stock ownership guidelines. None of our non-employee directors have sold or otherwise transferred any of their shares of our common stock. In addition, as described above, for 2015, our directors deferred 65 percent of their aggregate compensation into the company’s common stock, even though they previously had satisfied their stock ownership guideline requirements.
The table set forth below shows the non-employee Board members’ stock ownership levels as of December 31, 2015.
|
| | | | | | | | | | | | |
Name | | Stock Ownership Requirement ($) | | Number of Shares or DSUs Owned (#) | | Value of Shares or DSUs Owned (1) ($) | | Ownership as a Percent of Requirement (1) (%) |
E. Linn Draper Jr., Board Chair | | 625,000 |
| | 104,874 |
| | 5,689,415 |
| | 910 | % |
Stephen P. Adik | | 175,000 |
| | 77,452 |
| | 4,201,771 |
| | 2,401 | % |
Dorothy M. Bradley | | 125,000 |
| | 20,270 |
| | 1,099,648 |
| | 880 | % |
Dana J. Dykhouse | | 175,000 |
| | 17,500 |
| | 949,375 |
| | 543 | % |
Jan R. Horsfall | | 125,000 |
| | 2,850 |
| | 154,613 |
| | 124 | % |
Julia L. Johnson | | 125,000 |
| | 71,004 |
| | 3,851,967 |
| | 3,082 | % |
Denton L. Peoples | | 175,000 |
| | 42,850 |
| | 2,324,613 |
| | 1,328 | % |
| |
(1) | Value of shares or DSUs owned and ownership as a percent of stock ownership requirement are calculated as of December 31, 2015, using a closing stock price of $54.25. |
Stock Ownership Information
Our common stock is currently our only class of voting securities. The number of shares noted in the tables below are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and any shares which the person has the right to acquire within 60 days through the exercise of option, warrant, or right.
Security Ownership of Directors and Management
The following table sets forth certain information as of February 9, 2016, with respect to the beneficial ownership of shares of our common stock owned by our current directors, the named executive officers, and by all of our directors and executive officers as a group.
|
| | | | | | | | | | | | | | |
| Amount and Nature of Beneficial Ownership | |
Name of Beneficial Owner | | Unrestricted Shares of Common Stock Beneficially Owned Directly (#) | | Unrestricted Shares of Common Stock Beneficially Owned Indirectly (#) | | Deferred Stock Units (#) | | Total Shares of Common Stock Beneficially Owned (#) | | Percent of Common Stock (%) |
Stephen P. Adik (1) | | — |
| | 20,000 |
| | 60,274 |
| | 80,274 |
| | * |
E. Linn Draper Jr. | | — |
| | — |
| | 109,184 |
| | 109,184 |
| | * |
Dorothy M. Bradley | | 3,857 |
| | — |
| | 19,163 |
| | 23,020 |
| | * |
Dana J. Dykhouse | | 20,250 |
| | — |
| | — |
| | 20,250 |
| | * |
Jan R. Horsfall | | 5,600 |
| | — |
| | — |
| | 5,600 |
| | * |
Julia L. Johnson | | — |
| | — |
| | 73,902 |
| | 73,902 |
| | * |
Denton Louis Peoples | | 3,000 |
| | — |
| | 42,828 |
| | 45,828 |
| | * |
Robert C. Rowe (2) | | 7,381 |
| | — |
| | 120,687 |
| | 128,068 |
| | * |
Brian B. Bird | | 50,164 |
| | — |
| | — |
| | 50,164 |
| | * |
Heather H. Grahame | | 25,665 |
| | — |
| | — |
| | 25,665 |
| | * |
Curtis T. Pohl | | 17,023 |
| | — |
| | — |
| | 17,023 |
| | * |
Bobbi L. Schroeppel | | 16,187 |
| | — |
| | — |
| | 16,187 |
| | * |
Directors and Executive Officers as a Group (16 persons) | | 172,943 |
| | 20,000 |
| | 451,594 |
| | 644,537 |
| | 1.34 |
* Less than one percent. | | | | | | | | | | |
| |
(1) | Shares held indirectly by Mr. Adik represent shares held in a trust of which Mr. Adik and his spouse are co-trustees. |
| |
(2) | Shares held indirectly by Mr. Rowe represent shares held in a SEP IRA owned by Mr. Rowe. |
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on information furnished to us and contained in reports filed with the SEC, as well as written representations that no other reports were required, NorthWestern believes that during 2015 all of its directors and executive officers timely filed all reports required by Section 16 of the Exchange Act.
|
|
Stock Ownership Information |
Security Ownership of Certain Beneficial Holders
The following table sets forth information regarding whom we know to be the beneficial owners of more than five percent of our issued and outstanding common stock as of February 11, 2016. The information reflected in the table is based on a review of statements filed with the SEC pursuant to Sections 13(d), 13(f), and review13(g) of the Exchange Act.
|
| | | | |
Name of Beneficial Owner | | Shares of Common Stock Beneficially Owned (#) | | Percent of Common Stock (%) |
BlackRock, Inc. (1) | | 7,702,959 | | 16.0 |
55 East 52nd Street, New York, NY 10022 | | | | |
The Vanguard Group, Inc. (2) | | 3,771,534 | | 7.8 |
100 Vanguard Blvd., Malvern, PA 19355 | | | | |
| |
(1) | Reflects shares beneficially owned by BlackRock, Inc. as of December 31, 2015, according to a statement on Schedule 13G/A filed with the SEC on January 8, 2016, which indicates that the beneficial owner, a holding company, or control person in accordance with Rule 13d-1(b), has sole voting power with respect to 7,579,600 shares and sole dispositive power with respect to 7,702,979 shares. The beneficial owner holds shared voting or dispositive power with respect to none of the shares. The Schedule 13G/A certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation. |
| |
(2) | Reflects shares beneficially owned by The Vanguard Group, Inc., as of December 31, 2015, according to a statement on Schedule 13G filed with the SEC on February 11, 2016, which indicates that the beneficial owner, an investment adviser in accordance with Rule 13d-1(b), has sole voting power with respect to 64,113 shares and sole dispositive power with respect to 3,711,721 shares. The beneficial owner has shared voting power with respect to 2,500 shares and shared dispositive power with respect to 59,813 shares and shared voting power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation. |
Other Matters
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents summary information about our Equity Compensation Plan, as of the close of business on December 31, 2015:
| |
a. | The aggregate number of shares of our common stock subject to outstanding stock options, warrants, and rights, including unvested performance units and unvested restricted share units; |
| |
b. | The weighted average exercise price (or grant date fair value) of those outstanding stock options, warrants, and rights; and |
| |
c. | The number of shares that remain available for future option grants, excluding the number of shares to be issued upon the exercise of outstanding options, warrants, and rights. |
For additional information regarding our long-term incentive plans and the accounting effects of our stock-based compensation, please see Note 16 to our consolidated financial statements included in the Company's Forms 10-Q. Forour Annual Report on Form 10-K for the year ended December 31, 2002, Arthur Andersen did not bill the Company for any audit
services.
Audit Related Fees. For the year ended December 31, 2002, neither
Deloitte nor Arthur Anderson billed NorthWestern for other services related to
the performance of the audit of the Company's financial statements and review of
financial statements.
14
Tax Fees. For the year ended December 31, 2002, Deloitte billed
NorthWestern $680,471 for services related to tax compliance, tax advice and tax
planning. These services related to the preparation of federal, state and
foreign tax returns and other filings and advice related to tax planning
strategies. For the year ended December 31, 2002, Arthur Andersen billed the
Company $297,920 for such services.
All Other Fees. For the year ended December 31, 2002, neither Deloitte
nor Arthur Andersen billed NorthWestern for services other than those described
above. As provided in the Audit Committee charter the Audit Committee
pre-approves all services provided by its independent auditors. The pre-approval
process has been in effect since late 2002 and, therefore, the Audit Committee
does not have records of what percentage of the above fees were pre-approved.
However, all of the above services and fees were reviewed and approved by the
Audit Committee either before or after the respective services were rendered.
The Audit Committee has considered the nature and amount of the fees
billed by Deloitte and believes that the provision of the services for
activities unrelated to the audit is compatible with maintaining Deloitte's
independence.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE RATIFICATION OF
DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The2015. |
| | | | | | | | | | |
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) | | Weighted average exercise price of outstanding options, warrants, and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders (1) | | 244,885 |
| (2) | $39.77 | (3) | 933,387 |
| (4) |
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
| |
Total | | 244,885 |
|
|
|
|
| 933,387 |
| |
| |
(1) | Consists of the Equity Compensation Plan, which was re-approved by stockholders at the 2014 annual meeting. |
| |
(2) | Consists of (a) 187,572 unvested performance units, with a weighted average grant date fair value of $40.39, granted to employees who participate in our LTIP, and (b) 57,313 unvested restricted share units, with a weighted average grant date fair value of $37.76, granted to executive officers under our ERRP. For descriptions of our LTIP and ERRP, please see the Compensation Discussion and Analysis section of this Proxy Statement. |
| |
(3) | Amount represents the weighted average grant date fair value of the outstanding awards reflected in column (a). |
| |
(4) | Awards under the Equity Compensation Plan can take the form of stock options, share appreciation rights, restricted and unrestricted share awards, deferred share units, and performance awards. |
Corporate Governance
Our Board managesoversees the business of the Company.company. It establishes overall policies and standards for the Companyus and reviews the performance of our management. The Board operates pursuant to a set of written Corporate Governance Guidelines that set forth the company’s corporate governance philosophy and the governance policies and practices that the company has established to assist in governing the company and its affiliates. In addition to our Corporate Governance Guidelines, the principal documents which establish our primary corporate governance practices are listed below and can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
|
| |
●Certificate of Incorporation ●Bylaws ●Audit Committee Charter ●Human Resources Committee Charter ●Governance and Innovation Committee Charter ●Corporate Governance Guidelines ●Code of Conduct and Ethics | ●Code of Ethics for the Chief Executive Officer and Senior Financial Officers ●Complaint Procedures for the Audit Committee of the Board ●Corporate Political Contributions Policy ●Insider Trading Policy ●Related Persons Transactions Policy |
|
| |
We are committed to strong corporate governance. As governance standards have evolved, we have enhanced our governance standards as appropriate to best serve the interests of our stockholders. Our commitment to corporate governance best practices has been recognized. Forbes has recognized us three |
times on its list of America’s Most Trustworthy Companies, a distinction awarded, according to Forbes, for transparent accounting and solid corporate governance practices. Our proxy disclosures also have been recognized by the NYSE Governance Services and Corporate Secretary magazine. In June of 2015, our 2014 proxy statement received NYSE's Exemplary CD&A award. That proxy statement also received Corporate Secretary’s Best Proxy Statement (small to mid-cap) award, and we were a finalist for Corporate Secretary’s Best Proxy Statement in 2012 and 2013. Glass Lewis and C-Suite magazine also have recognized our say-on-pay disclosures. | |
|
We believe that the corporate governance practices we have adopted benefit our stockholders by maintaining appropriate accountability for our company.
|
| | |
| | |
| What We Do |
| ● | Annual election of all directors. |
| ● | Majority vote plus resignation standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider. |
| ● | Allow stockholders owning 25 percent of our shares to call a special meeting. |
| ● | Independent board. Our Board is comprised entirely of independent directors, except our CEO. |
| ● | Independent Board Chair. |
| ● | Independent Board committees. Each of our Board committees (audit, human resources, and governance and innovation) is made up solely of independent directors. |
| ● | Committee authority to retain independent advisors. Each of our Board committees has the authority to retain independent advisors, which will be paid for by the company. |
| ● | Code of Conduct and Ethics. We are committed to operating with honesty and integrity and maintaining the highest level of ethical conduct. Our Code of Conduct and Ethics applies to all employees, as well as the Board. We also have a separateCode of Ethics for the Chief Executive Officer and Senior Financial Officersconcerning financial reporting and other related matters. |
| ● | Robust stock ownership guidelines for executive officers and directors. |
| | |
|
| | |
| | |
| What We Don’t Do |
| ● | Poison pill. We do not have a stockholders rights plan or poison pill. |
| ● | Hedging or pledging of company securities. We do not allow our directors, executives, or employees to hedge or pledge company securities. |
| ● | Corporate political contributions. We do not make contributions to candidates for political office, political parties, or committees, or political committees organized to advance political candidates. |
| ● | Supermajority voting. We do not have supermajority voting provisions in our certificate of incorporation or bylaws, except to approve (or amend provisions concerning) certain business combinations or mergers. |
| | |
Board of Directors
Our Board currently has eight members. Director Peoples is not seeking re-election at our 2016 annual meeting, and we will be reducing the size of the Board to seven effective with his resignation. We believe a limited number of directors helps maintain personal and group accountability. Our Board is independent in composition and outlook, led by an independent Chair and composed of independent directors, with the exception of our CEO. |
| | | | | | | | | | | |
Our individual Board members have varied expertise and bring extensive professional experience from both within and outside our industry. This provides our Board with a vast collective skill set which is |
advantageous to the Board’s oversight of our company. While the industry-specific expertise possessed by certain of our Board members is essential, we also benefit from the viewpoints of our directors with expertise outside our industry. These varied perspectives expand the Board’s ability to provide relevant guidance to our business. | | |
| Collective Skills of Board Nominees |
|
l l l l | l l l l l l | l l l l l l | l l |
l l |
l l l | l l l l l l | l |
l l l l l l | l l l l l l l |
| | | | | | | | | |
Utility | Finance | Executive | Regulatory | Engineering | Service Territory | Legal / Public Policy | Marketing | Board | NACD Fellow |
Our Board acts as a coherent team and fosters an environment that allows individual insights to contribute to the group consensus. Our Board members are focused on long-term company success and maintain an effective dialogue with management through constructive relationships which provide timely and appropriate deliberation.
Each of our eight current Board members has exceeded the stock ownership requirements established an Audit Committee, a
Compensation Committee,by our Corporate Governance Guidelines and continues to hold stock in excess of these ownership requirements. None of our Board members has sold any company stock. Each current director has been recognized as a Governance Committee whose functionsFellow by the National Association of Corporate Directors (NACD).
Our Board is actively engaged both inside and outside the boardroom. Our Board members have knowledge and insight that enables them to provide guidance concerning our business, with particular focus on succession planning, corporate strategy, executive compensation, risk management, and operating performance. Our Board members spend time in our service territory interacting with our employees, customers, and community leaders. They seek and participate in learning opportunities to stay abreast of both the latest industry and corporate governance developments affecting their role as directors.
Most of our Board meetings, including the annual meeting, are briefly
described below.held in approximately twelve locations throughout our service territory, on a rotating basis. This practice of rotating meeting locations offers several educational opportunities for our Board members, including attending receptions of community leaders and meetings with employees. These opportunities are intended to inform our Board about the communities we serve and the issues, concerns, and successes of our employees. Holding Board meetings in our service territory allow our Board to gain a broader understanding of various areas of our company and permit non-management employees to make presentations to the Board that highlight their work. Our Board meeting agendas regularly include in-depth discussions concerning enterprise risks and different areas of our financial statements.
Our Board considers attendance at board and stockholder meetings and participation by directors in determining continued service on the Board. Attendance and participation is reviewed as part of the Board’s annual self-evaluation process. The Board held four regularnine meetings and ten special meetings during
2002.in 2015. Each directorof our directors attended more than 75100 percent of the aggregate of the meetings of the Board and of each committee on which he served. Committeeor she served, except one director that was unable to attend a special meeting of the Board. At our last annual meeting of stockholders in April 2015, all of our current directors were in attendance.
Individual Directors
Following are biographies of seven of our current Board members, are appointed annuallyeach of whom is currently serving and has been nominated to serve another one-year term. As previously announced, our eighth Board member, Denton Louis Peoples, is not seeking re-election at the Board'sour annual meeting. |
| | | | | |
| Stephen P. Adik Age 72 Independent Director since 2004 | |
| | | | | |
| Utility, Finance, and Engineering experience as the retired vice chairman (2001-03) of NiSource, Inc., an electric and natural gas production, transmission and distribution company, as well as other executive roles prior to that, including chief financial officer (1996-2001). |
|
| | | | |
| Other Executive, Board, and NACD Fellow credentials through positions in the railroad industry, service on the boards of American Water Works Company, Inc. (NYSE: AWK, 2009-14) and Beacon Power (NASDAQ: BCON, 2004-10), as well as other boards (Chicago SouthShore and South Bend Railroad and the Dearborn Midwest Conveyor Company). |
| |
| | | | | |
| | We believe Mr. Adik is Qualified to Serve on our Board because of his ● 25+ years energy and utility experience ● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE), MBA in finance ● Board service in energy- and utility-related industries brings developed perspective ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
|
| | | | |
| Thanking a retiring board member | |
| | | In January 2016, Denton Louis Peoples announced that he would not be seeking re-election to our Board at the end of his annual term on April 20, 2016, due to his fight against pancreatic cancer. Lou has served over ten years on our Board, including most recently as the chair of our Governance and Innovation Committee. During his Board tenure, he has leveraged the experience from his career as a utility executive and brought a keen focus on technology and innovation issues. He has dedicated much of his life to serving others through his involvement in numerous charitable organizations. We are grateful to have had his service to our shareholders and company over these past ten years. | |
|
| | | | | |
| Dorothy M. Bradley Age 69 Independent Director since 2009 | |
| | | | | |
| Legal / Public Policy and Board experienceas the retired District Court Administrator for the 18th Judicial Court of Montana (2000-07), eight terms as an elected state legislator in the Montana House of Representatives (beginning in 1971) and the Director of the University Water Center at Montana State University (1993-2000). |
|
| | | | |
| Service Territory and NACD Fellow credentials as a resident of and respected civic leader in Montana, including non-public company Board positions at One Montana, Science Technology Engineering and Math, and the American Prairie Foundation. |
| |
| | | | | |
| | We believe Ms. Bradley is Qualified to Serve on our Board because of her ● Experience as a respected civic leader within the Montana judicial and legislative systems ● Local perspective on relevant regulatory, political and community issues facing our company ● Background in the public policy arena beneficial for dealing with environmental issues ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
|
| | | | | |
| E. Linn Draper, Jr. Age 74 Independent Director since 2004 Chairof the Board |
| | | | | |
| Utility, Executive, and Engineering experiencethrough positions as retired chairman, president and chief executive officer of both American Electric Power Company, a public utility holding company (1992-2004), and Gulf States Utilities Company, an electric utility company (1979-1992), as well as other executive roles and his background in nuclear engineering. |
|
| | | | |
| Finance, Board, and NACD Fellow credentials as a result of extensive service on several public boards (and their committees) for companies in the utility, energy and related industries, including former service to the boards of Alliance Data Systems (NYSE: ADS) (since 2005), Alpha Natural Resources, Inc. (NYSE: ANR) (since 2004); TransCanada (NYSE: TRP) (2005-13), and Temple-Inland Inc. (2004-12). |
| |
| | | | | |
| | We believe Dr. Draper is Qualified to Serve on our Board because of his ● Extensive experience as the lead executive for some of the top electric utilities in the country ● Wide perspective gained from public company board and committee service ● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE) ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
|
| | | | | |
| Dana J. Dykhouse Age 59 Independent Director since 2009 | |
| | | | | |
| Finance, Executive, and Board experiencethrough his leadership of First PREMIER Bank, a regional bank headquartered in Sioux Falls, South Dakota, as its chief executive officer (since 1995) and his service in a variety of executive leadership roles in community and professional organizations and non-public company boards in South Dakota. |
|
| | | | |
| Service Territory and NACD Fellow credentials as a resident of and respected civic leader in South Dakota. |
| |
| | | | | |
| | We believe Mr. Dykhouse is Qualified to Serve on our Board because of his ● Experience as a respected civic, community and professional leader within South Dakota ● Local perspective on relevant issues facing our company in South Dakota ● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE) ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
|
| | | | | |
| Jan R. Horsfall Age 55 Independent Director since 2015 |
| | | | | |
| Finance, Marketing, and Executive experiencethrough his current position as co-founder and chief executive officer of Maxletics Corporation, a sports technology and media company (since 2014) and his former roles as chief executive officer of Universal Lubricants, LLC (2012-14), an oil collecting, refining, blending and distribution company; founder and co-chairman of Startup Colorado (2011-12), a startup business incubator in Colorado's front range; chief marketing officer of Turbine Inc. (2009-10), an online gaming company, which was sold to Warner Bros. Interactive Entertainment; founder and CEO of Gemini Voice Solutions, Inc., an experimental broadband voice (VoIP) company; vice president of marketing for LYCOS, Inc., an internet portal and search engine; and vice president of consumer brand strategy for Valvoline, a provider of automotive after-market products, among other positions. |
|
| | | | | |
| | Board and NACD Fellow credentials as a current and former board member of several privately held and non-profit entities. |
| | | | | |
| | We believe Mr. Horsfall is Qualified to Serve on our Board because of his ● Executive experience as a chief executive officer, chief marketing officer and other positions ● Financial proficiency – financially literate (NYSE) ● Marketing background ● Experience with mergers, acquisitions and the growth and development of companies ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2015 |
|
| | | | | |
| Julia L. Johnson Age 53 Independent Director since 2004 | |
| | | | | |
| Utility, Regulatory, Executive, Finance, and Legal / Public Policy experiencethrough her leadership as President of NetCommunications, LLC (since 2000), a consulting firm in the energy, telecommunications and information technology public policy arenas, prior service as Chairwoman (1997-99) and Commissioner (1993-97) of the Florida Public Service Commission, service to various public policy and non-profit organizations, and legal background. |
|
| | | | |
| Board and NACD Fellow credentials as a director on public company boards, including companies in the utility and energy industries, such as current service to American Water Works Company, Inc. (NYSE: AWK) (since 2008), FirstEnergy (NYSE: FE) (since 2011 following merger with Allegheny Energy in 2011), and MasTec, Inc. (NYSE: MTZ) (since 2002), and former service to the board of Allegheny Energy (NYSE: AYE) (2003 until merger with FirstEnergy in 2011). |
| |
| | | | | |
| | We believe Ms. Johnson is Qualified to Serve on our Board because of her ● Experience in the public utility regulatory arena, as an executive, board member and regulator ● Public policy background which provides a wide perspective on regulatory and political issues ● Financial proficiency – financially literate (NYSE) ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
|
| | | | | |
| Robert C. Rowe Age 60Director since 2008 | |
| | | | | |
| Utility, Regulatory, Finance, Executive, and Legal / Public Policy experiencethrough service as our president and chief executive officer (since 2008) and former service as co-founder and senior partner at Balhoff, Rowe & Williams (2005-08), a national professional services firm advising the telecommunications and energy industries, and chairman (2003-04)and commissioner (1993-2002) of the Montana Public Service Commission. |
|
| | | | |
| Service Territory, Board, and NACD Fellow credentials as a resident of Montana, and from voluntary leadership roles in the utility industry, such as chairman (2012-2013) of the Western Energy Institute (2012-present), co-chair of the Institute of Electric Innovation (Edison Electric Foundation), board member of the American Gas Association, and past president of the National Association of Regulatory Utility Commissioners. |
| |
| | | | | |
| | We believe Mr. Rowe is Qualified to Serve on our Board because of his ● Position as our president and chief executive officer ● Experience in the regulatory and public policy arenas ● Financial proficiency – financially literate (NYSE) ● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011 |
Independent Board Chair
|
| | |
Our Board has placed the responsibilities of Chair with an independent member of the Board, which we believe provides optimum accountability between the Board and our management team. We believe it is beneficial to have an independent Chair whose sole responsibility is leading our Board members as they provide leadership to our executive team. Our Chair is responsible for providing leadership to the Board and |
facilitating communication among the directors; setting the Board meeting agendas in consultation with the President and CEO; presiding at Board meetings, executive sessions and stockholder meetings; and serving as an ex-officio member of each Board committee. This delineation of duties allows the CEO to focus his attention on managing the day-to-day business of the company. We believe this structure provides strong leadership for our Board, while positioning our CEO as the leader of the company in the eyes of our customers, employees, and other stakeholders. | | |
Each regularly scheduled MayBoard and committee meeting provides the opportunity for executive sessions of the non-employee directors without management in attendance. These executive sessions are chaired by our Board Chair or the independent Chair of the respective committee.
Determination of Independence and Family Relationships
All of our directors are independent, with the sole exception of our CEO. A director is considered independent if he or she qualifies as “independent” under (1) NYSE standards and any applicable laws and (2) he or she (a) has never been an employee of the company or any of its subsidiaries, (b) is not a close relative of any management employee of the company, (c) provides no services to the company, and is not employed by any firm providing major services to the company, other than as a director, and (d) receives no compensation from the company other than director fees and benefits. The Board’s determination of independence is based upon a review of the questionnaires submitted on an annual basis by each director, the company’s relevant business records, publicly available information and the applicable SEC and NYSE requirements.
Based on its review, the Board determined that all of the non-employee directors (Messrs. Adik, Draper, Dykhouse, Horsfall, and Peoples, and Mses. Bradley and Johnson) are independent as defined in the listing standards noted above. Our final director, Mr. Rowe, is an executive officer of the company and, therefore, is not independent.
In addition to the independence assessment of our current directors, our Board reviewed the family relationships of our current directors and executive officers to determine the existence of any family
relationships not more remote than first cousins. Based on this review, our Board determined that no such family relationships exist, except that current directors Dana J. Dykhouse and Jan R. Horsfall are first cousins.
Committees of the Board
|
| |
We have three Board committees composed solely of independent directors, each with a different independent director serving as chairperson of the committee. Our Board committees are: ● Audit Committee; ● Human Resources Committee; and ● Governance and Innovation Committee. | |
We hold our Board committee meetings sequentially (i.e., committee meetings do not overlap with one another). As a result of holding sequential meetings, each of our Board members attends each committee meeting. We believe this practice is highly beneficial to our Board as a whole and the company in general because each of our Board members is aware of the detailed work conducted by each Board committee. This practice also affords each of our Board members the opportunity to provide input to the committee members before a committee reaches any conclusions.
The general functions of the committees are set forth in the following paragraphs. Each of these committees has a written charter that can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Our Audit Committee Theassists the Board in fulfilling its responsibilities for oversight of (1) the company’s accounting and financial reporting processes, (2) the audits and integrity of the company’s financial statements, (3) the company’s compliance with legal and regulatory requirements, (4) the independent auditor’s qualifications and independence, (5) the performance of the company’s internal audit function and independent auditors, (6) preparation of the Audit Committee provides oversightreports that the rules of the (i)SEC require to be included in the financial
reporting process,company’s annual proxy statement, (7) significant financings and dividend policy and dividend payment recommendations, and (8) such other duties as directed by the systemBoard.
The Board determined that each member of internal controls and the audit process of
NorthWestern and (ii) NorthWestern's independent auditors. The Audit Committee also recommends toqualifies as an audit committee financial expert under the Board the appointment of NorthWestern's independent
auditors. On February 5, 2003, the Board adopted a new written Audit Committee
Charter (the "Audit Charter"). As required by the Audit Charter,applicable SEC regulations and that each of the
membersmember of the Audit Committee is an independent, director as defined by NASD
Rule 4200(a)(15). The Audit Committee is composedin the listing standards of four non-employee directors
who arethe NYSE and the SEC regulations, and financially literate in financialwithin the meaning of the listing standards of the NYSE.
Our Human Resources Committee (HR Committee) acts on behalf of and auditingwith the concurrence of the Board with respect to compensation, benefits and other employment matters for executives; stock-based compensation plans for employees; the election and are
"independent" as defined byappointment of executive officers and other officers; the Securities and Exchange Commission (the "SEC")assessment of the performance of the CEO; and the New York Stock Exchange. Thecompensation of non-employee members of the AuditBoard. Our HR Committee are Chairman
Jerry W. Johnson, Larry F. Ness, Lawrence J. Ramaekers,has delegated the administration of our executive compensation and Bruce I. Smith. benefits plans to our Compensation and Benefits Department.
Each member of our HR Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 under the Exchange Act, and independent under the standards of the NYSE.
The Company's BoardHR Committee has determineddirectly retained Willis Towers Watson as its independent, external compensation consultant for the last several years. Willis Towers Watson is an independent consulting firm that provides services in the Company has at least one audit committee
financial expert, as defined in Item 401(h)(2)areas of Regulation S-K, serving on its
Audit Committee. The Audit Committee held fifteen meetings during 2002.
Compensation Committee
The Compensation Committee, which consists of Chairman Randy G. Darcy,
Marilyn R. Seymann, Larry F. Ness,executive compensation and Lawrence J. Ramaekers, sets general
compensation policy for NorthWesternbenefits and has final approval power overspecific expertise in evaluating compensation in the utility industry. Willis Towers Watson reports directly to the HR Committee and, at the HR Committee’s request, provides an annual evaluation and analysis of trends in both executive officers. compensation and director compensation. Willis Towers Watson also evaluates other compensation issues at the direct request of the HR Committee.
In accordance with NYSE requirements approved by the SEC in 2013, the HR Committee evaluated the following six factors to assess independence and conflicts of interest before it engaged Willis Towers Watson (then known as Towers Watson) to do work in 2015 and 2016:
| |
1. | The provision of other services to the company by Towers Watson. |
| |
2. | The amount of fees received from the company by Towers Watson, as a percentage of the firm's total revenues. |
| |
3. | The policies or procedures of Towers Watson that are designed to prevent conflicts of interest. |
| |
4. | Any business or personal relationship of a member of the HR Committee with the regular members of the Towers Watson executive compensation team serving the company. |
| |
5. | Any stock of the company owned by the regular members of the Towers Watson executive compensation team serving the company. |
| |
6. | Any business or personal relationships between the executive officers of the company and the regular members of the Towers Watson executive compensation team serving the company. |
The CompensationHR Committee also had final
approval power over guidelinesobtained a representation letter from Willis Towers Watson addressing these six factors and criteria for officers' bonusescertain other matters related to its independence. Based on the HR Committee’s evaluation of these factors and administers NorthWestern's incentivethe representations from Willis Towers Watson, the HR Committee concluded that Willis Towers Watson is an independent adviser and has no conflicts of interest with us.
As discussed in the “Compensation Discussion and Analysis” section of this proxy statement, the HR Committee also considers input on executive compensation from our CEO and long-term equity plans. On
February 5, 2003,CFO.
Our Governance and Innovation Committee (Governance Committee) is comprised of independent directors and assists the Board
adopted a new written Compensation Committee
Charter. The Compensation Committee held five meetings during 2002.
Governance Committee
The Governance Committee is responsible forin identifying
qualified individuals to
fill vacancies onbecome Board members, in determining the
Board, recommending nominees to be voted upon at the
annual meeting of stockholders, recommending to the Board appointees to serve on
committeescomposition of the Board and
its committees, in monitoring a process to assess Board effectiveness, in developing and implementing our corporate governance principles, and in overseeing the
developmentcompany’s efforts concerning innovation, including emerging or competing technologies and
implementation of
NorthWestern's corporate governance policies and code of ethics and providing
performance appraisal procedures for the chief executive officer, director
qualifications, and Board self-evaluation. The Governance Committee is composed
of not less than three non-employee
15
directors. The members ofalternative energy resources. Further, the Governance Committee are Chairman Marilyn R.
Seymann, Bruce I. Smith, Jerry W. Johnson,reviews and Randy G. Darcy. Theoversees our position on corporate social responsibilities, and public policy issues that significantly affect us, our stockholders, our customers and our other key stakeholders. Our Governance Committee held five meetings in 2002.
Theevaluates each director candidate to determine whether such candidate should be recommended to the Board as a director nominee. In considering new individuals for nomination as directors, the Governance Committee will considertypically solicits recommendations from its current directors and is authorized to engage third-party advisers, including search firms, to assist in the identification and evaluation
of candidates. For a further discussion of the standards our Governance Committee uses to evaluate director candidates, please see Proposal 1 – Election of Directors, earlier in this Proxy Statement.
Our Governance Committee also has the responsibility for considering nominees for directors properly recommended by stockholders. A stockholder who wishes to submit a candidate for consideration at the
Annual Meetingannual meeting of
Stockholders to be held in 2004stockholders must notify
the NorthWesternour Corporate Secretary in writing not less than 90 days
norand no more than 120 days prior to the
first anniversary date of the preceding year’s annual meeting. The
stockholder'sstockholder’s written notice must include information about each proposed nominee, including name, age, business address, principal occupation
shares beneficially owned and other information required in proxy solicitations. The nomination notice
also must
also include the nominating
stockholder'sstockholder’s name and address, the number of shares of
theour common stock beneficially owned by the stockholder and any arrangements or understandings between the nominee and the stockholder. The stockholder
also must
also furnish a statement from the nominee indicating that the nominee wishes and is able to serve as a director.
CompensationThe manner in which the Governance Committee
Interlocksevaluates candidates recommended by stockholders is generally the same as candidates from other sources. However, the Governance Committee also will seek and
Insider Participation
Noneconsider information concerning the relationship between the recommending stockholder and the candidate to determine if the candidate can represent the interests of all of the
persons who served as members ofstockholders. The Governance Committee will not evaluate a candidate recommended by a stockholder unless the
Compensation Committee
of the Board during fiscal year 2002 are officers or employees or former
employees of NorthWestern or any of its subsidiaries. No member of the
Compensation Committee serves as a member of the Board or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board or Compensation Committee.
Other Directors during 2002
In addition to the Directors nominated for reelection, Merle Lewis, the
Company's former Chairman and Chief Executive Officer, served as a Director
during all of 2002 and until his resignation as a Director as of December 31,
2002, and Richard R. Hylland served as a Director until his resignation as a
Director on April 30, 2003. Neither of these individuals has any continuing
relationship with the Company.
16
EXECUTIVE OFFICERS
Age on
June 1,
Executive Officer Current Title and Prior Employment 2003
- --------------------------------- -------------------------------------------------------------------------------------- ----------
Gary G. Drook.................... Chief Executive Officer since January 2003; formerly President and Chief Executive 58
Officer and Director of AFFINA, The Customer Relationship Company (formerly
Ruppman Marketing Technologies, Inc.), a provider of customer services programs
(1997-2003); formerly President of Network Services (1994-1995) for Ameritech
Corporation, a communications services provider. Mr. Drook also serves as Chairman
of NorthWestern Growth Corporation, Expanets, Inc. and Blue Dot Services Inc.
(each of which are NorthWestern subsidiaries).
Daniel K. Newell................. Senior Vice President since February 2001; formerly Senior Vice President--Finance 46
(1999-February 2001), Chief Financial Officer (1996-February 2001), and Vice
President--Finance (1995-1999). Mr. Newell also serves as President and Chief
Executive Officer of Blue Dot Services Inc. (since 2001) and as Managing Director
and Chief Executive Officer of NorthWestern Growth Corporation (since 1998);
formerly President (1998) and Executive Vice President (1995-1998) of NorthWestern
Growth Corporation. Mr. Newell also is a member of the boards of directors of
NorthWestern Growth Corporation, Expanets, Inc., Blue Dot Services Inc., and
CornerStone Propane GP, Inc.
Eric R. Jacobsen................. Senior Vice President since February 2002; General Counsel and Chief Legal Officer 47
since February 1999; formerly Vice President (1999-2002); Mr. Jacobsen also serves
as Chief Operating Officer of NorthWestern Growth Corporation (since 2001);
formerly Principal and General Counsel of NorthWestern Growth Corporation
(1998-2001). Mr. Jacobsen also is a member of the boards of directors of
NorthWestern Growth Corporation and Expanets, Inc. Prior to joining the Company,
Mr. Jacobsen was Vice President--General Counsel and Secretary of LodgeNet
Entertainment Corporation (1995-1998). Previously Mr. Jacobsen was a partner
(1988-1995) with the law firm Manatt, Phelps & Phillips in Los Angeles, California.
Michael J. Hanson................ President and Chief Executive Officer of NorthWestern Energy division (formerly 44
called NorthWestern Public Service) since June 1998. Prior to joining the Company,
Mr. Hanson was General Manager and Chief Executive Officer of Northern States Power
Company South Dakota and North Dakota in Sioux Falls, South Dakota (1994-1998).
Kipp D. Orme..................... Vice President and Chief Financial Officer since February 2001; formerly Vice 44
President--Finance (2000-2002); Mr. Orme also serves as Vice President and Chief
Financial Officer of NorthWestern Growth Corporation (since May 1999). Mr. Orme
also is a member of the board of directors of NorthWestern Growth Corporation,
Blue Dot Services Inc. and Expanets, Inc. Prior to joining the Company, Mr. Orme
was Vice President--Rental Business Finance of Thorn Americas, Inc., in Wichita,
Kansas (1997-1998), Chief Financial Officer of Thorn Asia-Pacific in Sydney,
Australia (1994-1997).
John R. Van Camp................. Vice President--Human Resources since October 1999. Prior to joining the Company, 40
Mr. Van Camp was Human Resources Manager of GE Medical Systems (1997-1999), Human
Resources Manager of GE Industrial Systems (1995-1997), Human Resources Manager of
United Technologies Pratt & Whitney (1993-1995).
17
Age on
March 1,
Executive Officer Current Title and Prior Employment 2003
William M. Austin................ Chief Restructuring Officer since April 2003. Prior to joining the Company, Mr. 57
Austin served as Chief Executive Officer of Cable & Wireless/Exodus Communications
US, Executive Vice President and Chief Financial Officer of Exodus (2001-2002),
Senior Vice President and Chief Financial Officer of BMC Software (1997-2001).
- ---------------------------------- ------------------------------------------------------------------------------------- ----------
Maurice C. Worsfold.............. Vice President--Audit and Controls since April 2003. Prior to joining the Company, 67
Mr. Worsfold served as vice president and chief financial officer of VimpelCom, a
Moscow, Russia-based telecommunications company (2000-2003), Chief Financial
Officer of Clearwater-Moscow (1999) and Corporate Director Finance of Rostik
Restaurants Ltd.--Moscow (1995-1998).
The Chief Executive Officer, the Chief Financial Officer, the Secretary
and Treasurer are elected annually by the Board. Other officers may be elected
or appointed by the Board at any meeting. All officers serve at the pleasure of
the Board.
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of June 1, 2003, with
respect to the beneficial ownership of shares of NorthWestern's common stock
owned by the directors, nominees for director, the "Named Executive Officers" of
NorthWestern, as described below, and by all directors and executive officers of
NorthWestern as a group. Except under special circumstances, NorthWestern's
common stock is the only class of voting securities. There are no persons known
to NorthWestern who own more than 5% of the outstanding shares of common stock.
The "Named Executive Officers" include NorthWestern's (a) Chief
Executive Officer; (b) its four most highly compensated executive officers,
other than the Chief Executive Officer, who were serving as executive officers
at the end of fiscal year 2002; and (c) up to two additional individuals for
whom such disclosure would have been provided under clause (a) and (b) above but
for the factstockholder notice states that the individual was not serving as an executive officer of
NorthWestern at the end of fiscal year 2002; provided, however, that no
disclosure need be provided for any executive officer, other than the CEO, whose
total annual salary and bonus does not exceed $100,000.
Accordingly, NorthWestern's Named Executive Officers include (a) Gary
G. Drook, its Chief Executive Officer; (b) Merle D. Lewis, former Chairman and
Chief Executive Officer and (c) Richard R. Hylland, former President and Chief
Operating Officer, Michael J. Hanson Eric R. Jacobsen, and Daniel K. Newell, the
four most highly-compensated executive officers, other than the Chief Executive
Officer, who were serving as executive officers at the end of fiscal year 2002
and whose salary and bonus exceeded $100,000.
Except as otherwise noted, the persons or entities in this table have
sole voting and investing power with respectpotential candidate has indicated a willingness to all the shares of NorthWestern's
common stock beneficially owned by them subject to community property laws,
where applicable. The information with respect to each person specified is as
supplied or confirmed by such person, based upon statements filed with the SEC,
or based upon the actual knowledge of NorthWestern.
Amount and Nature of
----------------------------------
Beneficial Ownership(1)
----------------------------------
Shares of
----------------------------------
common stock Percent of
---------------------------------- Common
Name of Beneficial Owner Beneficially Owned Stock
- ---------------------------------------------------------------------------- ---------------------------------- -----------------
Randy G. Darcy.............................................................. 5,811 *
Gary G. Drook............................................................... 5,610 *
Jerry W. Johnson............................................................ 11,326 *
Larry F. Ness............................................................... 12,407 *
18
Lawrence J. Ramaekers 0 *
Marilyn R. Seymann.......................................................... 4,106 *
Bruce I. Smith.............................................................. 15,025 *
[Nominee] [ ] *
Merle D. Lewis 202,079 *
Richard R. Hylland 30,221 *
Daniel K. Newell............................................................ 32,009 *
Michael J. Hanson........................................................... 13,146 *
Eric R. Jacobsen............................................................ 8,676 *
All directors & executive officers **....................................... 399,726 1%
_________________________
* Less than 1%
** Because they no longer serve as Directors or Officers for NorthWestern,
neither Mr. Lewis' shares nor Mr. Hylland's shares are included in this
total.
(1) Shares shown is based on shares of common stock outstanding at June 1,
2003. Shares shown represent both record and beneficial ownership,
including shares held in the team member's (employee's) account with
the Trustees of NorthWestern's Employee Stock Ownership Plan ("ESOP")
and in various plans (NorthWestern's 401(k) Retirement Plan,
Supplemental Variable Investment Plan, and Team Member Stock Purchase
Plan, collectively the "Team Member Savings Plans"). Mr. Hanson's
shares include 4,316 shares in an Individual Retirement Account. The
address of each person is 125 S. Dakota Ave., Sioux Falls, SD 57104.
Shares of common stock subject to options or warrants that are
exercisable within 60 days of June 1, 2003 are deemed to be outstanding
and to be beneficially owned by the person holding the options or
warrants for the purpose of computing the percentage ownership of the
person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person
(2) Mr. Lewis retired as Chairman and Chief Executive Officer as of
December 31, 2002.
(3) Mr. Hylland resigned as President and Chief Operating Officer and as a
member of the Board, effective April 30, 2003.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors and Executive Officers
The Company is required by the SEC to disclose compensation earned
during the last three fiscal years by (i) the Company's Chief Executive Officer;
(ii) the four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of fiscal
2002; and (iii) up to two additional individuals for whom such disclosure would
have been provided under clause (i) and (ii) above but for the fact that the
individual was not serving as an executive officer at the end of fiscal 2002;
provided, however, that no disclosure need be provided for any executive
officer, other than the Chief Executive Officer, whose total annual salary and
bonus does not exceed $100,000.
Accordingly, the following sections disclose information regarding
compensation earned during the last three fiscal years by (i) Merle D. Lewis,
the Company's former Chief Executive Officer; and (ii) Richard R. Hylland,
Michael J. Hanson, Eric R. Jacobsen and Daniel K. Newell, the four most
highly-compensated executive officers, other than the Chief Executive Officer,
who were serving as executive officers at the end of fiscal 2002 and whose
salary and bonus exceeded $100,000. All of these officers are referred to in
this Form 10-K as the "Named Executive Officers."
Summary Compensation Table
The following table sets forth the compensation earned during the
fiscal years indicated for services in all capacities by the Named Executive
Officers in 2002:
19
Awards
(Securities LTIP All Other
Bonus Underlying Payouts Compensation(4)
Name and Principal Position Year Salary $ (1)$ Options)(2) (3)($) ($)
- ---------------------------------------- --------- ------------- ----------- ----------------- -------------- ----------------------
Merle D. Lewis 2002 786,000 0 295,000(5) 321,712 57,918
Former Chairman & Chief 2001 786,000 150,000 177,511(5) 1,284,746 58,680
Executive Officer (5) 2000 734,208 247,000 278,442(5) 80,676 57,764
Richard R. Hylland 2002 550,583 0 154,600 130,562 32,080
Former President & Chief 2001 511,000 100,000 86,469 925,537 30,044
Operating Officer 2000 483,042 158,000 119,827 30,129 28,495
Michael J. Hanson 2002 345,833 540,000 29,000 0 14,063
President & CEO of NorthWestern 2001 323,750 635,914 9,000 0 19,684
Energy division 2000 293,583 390,370 8,035 0 19,319
Eric R. Jacobsen 2002 304,791 400,000 44,000 0 16,447
Senior Vice President, General 2001 280,416 150,000 28,000 430,757 17,491
Counsel & Chief Legal Officer and 2000 257,042 44,189 32,831 0 13,465
Chief Operating Officer of
NorthWestern Growth Corp.
Daniel K. Newell 2002 354,000 0 36,000 42,979 19,541
Sr. Vice President; President & 2001 347,333 80,000 44,500 861,346 21,600
CEO of Blue Dot Services, Inc. & 2000 311,917 118,000 39,481 0 19,170
Managing Director & CEO of
NorthWestern Growth Corp.
_________________________
(1) The amounts in this column are cash awards pursuant to NorthWestern's
annual incentive plans, which are described under the "Report on
Executive Compensation" which were earned in the year shown and paid in
the following year.
(2) For 2000 and 2002 for all named executives, and for Mr. Hanson, Mr.
Jacobsen, and Mr. Newell, in 2001, these awards are solely incentive
stock options. For Mr. Lewis and Mr. Hylland in 2001, the awards
included 155,000 and 75,500 incentive stock options, and 22,511 and
10,969 restricted stock awards, respectively, with the restricted stock
awards accruing quarterly dividends as declared. As of December 31,
2002, Mr. Hylland's restricted stock award was valued at $64,904. As
explained above, the restrictions on Mr. Lewis' restricted stock award
shares were removed as part of his retirement agreement.
(3) For 2000 and 2002, the amounts in this column represent the cash
payouts from NorthWestern's former phantom stock long-term incentive
compensation plan at the end of the five-year periods following the
dates of the awards. The payout in 2002 represents the last phantom
stock units held under this former long-term incentive plan. For 2001,
the amounts represent such former phantom stock plan payouts for
Messrs. Lewis, Hylland, and Newell in the following amounts: Lewis,
$146,695; Hylland, $95,161; and Newell, $30,970, with the remainder of
the 2001 distributions for those three executives and the distribution
for Mr. Jacobsen representing vested interests in the NorthWestern
Growth Corporation private equity plan, which was terminated in March
2003.
(4) The amounts in this column include NorthWestern's contributions on
behalf of the named executive officers to the Team Member Savings Plans
and to the ESOP as well as the amounts paid by NorthWestern with
respect to life insurance for the benefit of the executives. For the
executives named in this table, for 2002 such amounts under the Team
Member Savings Plans, ESOP, and life insurance under the NorthWestern
term life and Family Protector Plan, respectively, were as follows: Mr.
Lewis: $25,466, $27,490, and $4,962; Mr. Hylland: $17,954, $9,073, and
$5,053; Mr. Hanson: $7,656, $1,746, and $4,661; Mr. Jacobsen: $10,501,
$1,558, and $4,388; and Mr. Newell: $12,121, $2,999, and $4,421.
(5) Mr. Lewis retired, effective December 31, 2002. All ISOs and NQSOs
granted to Mr. Lewis were forfeited as part of the terms of his
retirement agreement, described elsewhere in this Report.
20
Information on Options
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable Value
---------------------------------------------------------------- At Assumed Annual Rates
No. Percent of of Stock Price Appreciation
of Securities Total Options for Option Term(3)($)
Underlying Granted to Exercise or ------------------------------------
Options Team Members Base Price Expiration At 5% ($35.66 At 10% ($56.66
Name Granted (#) in Fiscal Year ($/Sh)(2) Date Stock Price) Stock Price)
- ------------------------------ ---------------------------------------------------------------- ------------------ -----------------
Merle D. Lewis................ 295,000 37.5 20.70 (4) 0 0
Richard R. Hylland............ 154,600 19.7 20.70 2/6/2012 5,216,204 8,288,106
Michael J. Hanson............. 29,000 3.7 20.70 2/6/2012 978,460 1,554,690
Eric R. Jacobsen.............. 44,000 5.6 20.70 2/6/2012 1,484,560 2,358,840
Daniel K. Newell.............. 36,000 4.6 20.70 2/6/2012 1,214,640 1,929,960
_________________________
(1) All options granted in 2002 become exercisable in annual cumulative
installments of 25%, commencing on the first anniversary of the date of
grant, with full vesting occurring on the fourth anniversary date of
the grant. Vesting is accelerated in the event of a change in control
of NorthWestern.
(2) All options were granted at market value (the closing price of the
common stock on the New York Stock Exchange as reported in the Midwest
Edition of The Wall Street Journal) on the date of grant.
(3) The hypothetical potential gains (reported net of exercise price) are
based entirely on assumed annual growth rates of 5% and 10% of the
exercise price of the underlying NorthWestern common stock over the
10-year life of the options (which would equal a total increase in
stock price of 63% and 159%, respectively), rather than on the actual
market price of the common stock. The exercise price of the underlying
common stock is $20.70 per share and the market price of the common
stock at June 22, 2003 was $2.22 per share. These assumed rates of
growth are mandated by rules of the Securities and Exchange Commission
for illustration purposes only and are not intended to predict future
stock price.
(4) All ISOs and NQSOs granted to Mr. Lewis were forfeited as part of the
terms of his retirement agreement, described elsewhere in this Report.
Fiscal Year-End Option Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options At
Fiscal Year-End (#) Fiscal Year-End ($)(1)
----------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------ ------------------- ------------------ -------------------- ----------------
Merle D. Lewis........................................ 0(2) 0(2) 0 0
Richard R. Hylland.................................... 47,968 407,962 0 0
Michael J. Hanson..................................... 5,811 51,841 0 0
Eric R. Jacobsen...................................... 833 126,872 0 0
Daniel K. Newell...................................... 19,293 146,567 0 0
_________________________
(1) Represents the difference between $5.08 (the closing price of the
common stock on the New York Stock Exchange as reported in the Midwest
Edition of The Wall Street Journal for the close on December 31, 2002)
and the option exercise price.
(2) All ISOs and NQSOs previously held by Mr. Lewis were forfeited as part
of the terms of his retirement agreement, described elsewhere in this
Report.
Employment Contracts
A number of executives, including Messrs. Hanson, Jacobsen and Newell,
have comprehensive employment agreements. Mr. Hanson's agreement was entered
into on March 1, 2001 and terminates on the last day of February 2005. Mr.
Hanson is entitled to receive a base salary that is subject to annual increases
based on a median of comparable
21
companies and a discretionary bonus. Mr. Hanson is also eligible to participate
in NorthWestern's annual short-term cash incentive plans and long-term cash and
stock incentive plans tied to the success of the organization. These long-term
incentive plans include, among other things, options to purchase shares of
NorthWestern common stock and the right to participate in plans tied to the
performance of NorthWestern Energy. Mr. Hanson is also entitled to participate
in NorthWestern benefit plans available to executives, including, among other
things, health, retirement, disability and life insurance benefits as well as an
automobile allowance. The agreement provides for the payment of accrued salary
and termination benefits if Mr. Hanson's employment is terminated by
NorthWestern for any reason other than Cause, due to his death or by him due to
a "fundamental change." A fundamental change generally occurs if there is a
diminution in Mr. Hanson's responsibilities or compensation, NorthWestern
relocates its primary offices more than 30 miles or there is a change in control
or major transaction involving NorthWestern (each as defined in the agreement).
The termination benefits include a lump sum payment equal to (1) the sum of (a)
base salary, (b) the higher of either Mr. Hanson's most recent bonuses and
short-term incentive awards or the average of such bonuses and awards over the
preceding three calendar years and (c) the higher of either the value of Mr.
Hanson's most recent options, long-term incentive awards or the average value of
such options and awards over the preceding three calendar years, multiplied by
(2) the remaining term of the agreement. The termination benefits also include
lump sum payments equal to the fair market value of Mr. Hanson's interests under
NorthWestern's benefit plans. Mr. Hanson has the right to defer receipt of
certain of these termination benefits rather than receiving them as a lump sum.
All equity awards granted to Mr. Hanson accelerate in full upon termination of
the agreement (other than for Cause) and remain exercisable in accordance with
their terms. NorthWestern has agreed to make gross-up payments to Mr. Hanson to
the extent that termination benefits would be subject to the excise tax on
excess "parachute payments" following a change of control. The termination
benefits under these agreements are to be provided regardless of whether Mr.
Hanson is able to obtain other employment. The agreement contains provisions
requiring Mr. Hanson to maintain the confidentiality of NorthWestern proprietary
information and restricts Mr. Hanson from competing with NorthWestern or
soliciting NorthWestern employees, suppliers and customers for a period of two
years following termination. NorthWestern has agreed, pursuant to the agreement,
to indemnify Mr. Hanson to the fullest extent permitted by law.
Messrs. Jacobsen and Newell entered into employment agreements as of
March 1, 2001. Mr. Jacobsen's agreement terminates on the last day of February
2004. Mr. Newell's agreement terminates on the last day of February 2005.
Messrs. Jacobsen and Newell are entitled to receive a base salary that is
subject to annual increases based on the median of comparable companies and a
discretionary bonus. They are also eligible to participate in NorthWestern's
annual short-term cash incentive plans and long-term cash and stock incentive
plans tied to the success of the organization. These long-term incentive plans
include, among other things, options to purchase shares of NorthWestern common
stock. They are also entitled to participate in NorthWestern benefit plans
available to executives, including, among other things, health, retirement,
disability and life insurance benefits as well as an automobile allowance and
country club dues. The agreements provide for the payment of accrued salary and
termination benefits if employment is terminated by NorthWestern on
substantially the same terms as described above for Mr. Hanson's agreement. The
agreements contain provisions requiring them to maintain the confidentiality of
NorthWestern proprietary information and restricts them from competing with
NorthWestern or soliciting NorthWestern's employees, suppliers and customers for
a period of two years following termination. NorthWestern has agreed, pursuant
to the agreement, to indemnify each of Messrs. Jacobsen and Newell to the
fullest extent permitted by law.
The total remaining obligation under employment agreements in the
ordinary course, excluding a change in control, with Messrs. Hanson, Jacobsen
and Newell are approximately $1.8 million, $0.7 million and $1.9 million,
respectively.
Merle Lewis retired from his employment with the Company and its
subsidiaries and affiliates and resigned as the Company's Chief Executive
Officer and Chairman and from all trustee, administrator or similar positions in
which he served on behalf of the Company or any of its subsidiaries or
affiliates, effective December 31, 2002. Mr. Lewis concurrently resigned as a
member of the Board, and as an officer and director of each of the Company's
subsidiaries and affiliates (other than as a member of the board of directors of
CornerStone Propane G.P., Inc.) for which he served. In connection with his
retirement, Mr. Lewis entered into a retirement agreement with the Company and
terminated the Comprehensive Employment Agreement and Investment Program, dated
June 1, 2000, which was scheduled to expire February 28, 2006. Under the
Retirement Agreement, Mr. Lewis received the following, which total an aggregate
of approximately $3.5 million: (1) a cash severance payment, the equivalent of
one year's base salary and target annual incentive compensation for a total of
$1,711,000, (2) a cash payment of $73,000 from the Company, representing his
interest in the 1998 NorthWestern Energy Corporation Equity Ownership Incentive
Plan, (3) full vesting of the 22,511 shares of restricted stock granted to him
on March 1, 2001, originally scheduled to vest on February 4, 2005 (and all
additional shares purchased with dividends declared thereon) under the Company's
Stock Option and Incentive Plan (as amended on January 16, 2001), (4) payments
of $500 per
22
month until age 65 toward the cost of retiree health insurance, (5) retention of
the company provided leased automobile through the end of the such lease at an
estimated cost of $1,000 per month, and (6) age and service credits toward
benefit determination in NorthWestern's qualified and nonqualified pension plan
as if he were to continue to be employed through June 30, 2006, the value of
which is approximately $1.7 million on a present value basis as determined by
NorthWestern's actuaries. Based upon Mr. Lewis' years of service, and the
benefit elections he made under the provisions of the NorthWestern Pension Plan
and Supplemental Executive Retirement Plan, with the enhanced pension benefit,
Mr. Lewis began in January 2003 to receive a pension benefit of $29,470 per
month. The Company agreed to insure the payment of such subsidy in the event of
a change of control of the Company by obtaining a letter of credit or other
financial instrument.
Mr. Lewis waived or cancelled all other rights or interests he may have
had under the Stock Option and Incentive Plan, including all vested and unvested
incentive stock options, non-qualified stock options and phantom stock units
(including all dividends accrued thereon) granted to him under the plan. Mr.
Lewis waived all of his rights and interests in the Company's short-term and
long-term disability insurance coverages, term life insurance coverages and
annual incentive plans for 2002. He also waived his rights and interests in the
equity ownership incentive plans of NorthWestern Growth Corporation,
NorthWestern Services Group, Inc., NorthWestern Public Service, NorthWestern
Services Corporation, and NorCom Advanced Technologies, Inc. and assigned his
rights in the membership interests of NorthWestern Capital Partners, LLC, a
Delaware limited liability company, to the Company. Mr. Lewis retained all
benefits vested or earned as of the date of his retirement in the Company's
benefit and retirement plans in which he participated (and he waived all post
retirement vesting or interests), and the Company agreed to subsidize his
pension benefit payments such that his pension benefit will be calculated as if
Mr. Lewis' term of service or employment with the Company terminated on June 30,
2006, notwithstanding the actual date of retirement and regardless of the date
of payment of such benefits.
Mr. Lewis released the company and its affiliates and subsidiaries and
their agents from all know and unknown claims that he may have in connection
with his employment with the Company or as a stockholder of the Company, other
than (a) his right to enforce the retirement agreement, (b) any rights or claims
that arise after the date of his retirement, and (c) any claims for
indemnification from the Company or any claims under the Company's Directors and
Officers insurance policies, in either case, for actions or omissions in his
capacity as an officer or director of the Company.
Mr. Hylland had an employment agreement similar to that described above
for Mr. Hanson. Effective April 30, 2003, Mr. Hylland tendered his resignation
to NorthWestern, asserting that there has occurred a fundamental change in
connection with his employment under his employment agreement. NorthWestern has
disputed that a fundamental change has occurred.
Retirement Plan
NorthWestern has two retirement plans, with one applicable to its
Montana NorthWestern Energy team members and one applicable to its South Dakota
and Nebraska NorthWestern Energy and all NorthWestern Corporation team members.
All of the named executives participate in the latter plan. For that plan,
effective January 1, 2000, NorthWestern offered its team members two
alternatives with regard to its retirement plan. A team member could convert his
or her existing accrued benefit from the existing plan into an opening balance
in a hypothetical account under a new cash balance formula, or that team member
could continue under the existing defined benefit formula. All team members
hired after January 1, 2000 participate in the cash balance formula. The
beginning balance in the cash balance account for a converting team member was
determined based on the team member's accrued benefit, age and service as of
January 1, 2000, 2000 eligible pay, and a conversion interest rate of 6%. Under
the cash balance formula a participant's account grows based upon (1)
contributions by NorthWestern made once per year, and (2) by annual interest
credits based on the average Federal 30-year Treasury bill rate for November of
the preceding year (6.15% for 2000). Contribution rates were determined on
January 1, 2000, based on the participant's age and years of service on that
date. They range from 3%-7.5% (3% for all new team members) for compensation
below the taxable wage base and are doubled for compensation above the taxable
wage base. Upon termination of employment with NorthWestern, a team member, or
if deceased, his or her beneficiary, receives the cash balance in the account
paid in a lump sum or in other permitted annuity forms of payment.
To be eligible for the retirement plan, a team member must be 21 years
of age and have worked at least one year for NorthWestern, working at least
1,000 hours in that year. Non-employee Directors are not eligible to
participate. Benefits for team members who chose not to convert to the cash
balance formula will continue to be part of the defined benefit formula, which
provides an annual pension benefit upon normal retirement at age 65 or earlier
(subject to benefit reduction). Under this formula, the amount of the annual
pension is based upon average annual earnings for the sixty consecutive highest
paid months during the 10 years immediately preceding retirement. Upon
retirement on the normal retirement date, the annual
23
pension to which an eligible team member becomes entitled under the formula
amounts to 1.34% of average annual earnings up to the Covered Compensation base
plus 1.75% of such earnings in excess of the Covered Compensation base,
multiplied by all years of credited service.
The named executives also participate in a supplemental excess
retirement plan related to both of the pension formulas, which provides benefits
based on those formulas but with respect to compensation, which exceeds the
limits under the Code. In addition, NorthWestern has agreed to assure Mr. Hanson
a pension benefit equivalent to that which would be provided by the Retirement
Plan if he were given credit for his 17 years of prior service with another
utility company in addition to his years of service with NorthWestern. As a
result, he was credited with those additional years of service under the
supplemental excess retirement plan.
Assuming the remaining named executives reach the normal retirement age
of 65, the projected annual life annuity benefits for the named executives would
be: Mr. Hanson, $156,773; Mr. Jacobsen, $54,336; Mr. Newell, $97,279. In 2002
the cash balance accounts for the named executive officers, other than Mr.
Lewis, were as follows: Mr. Hanson $355,290, Mr. Jacobsen $60,693; and Mr.
Newell $160,005.
Other Benefits
NorthWestern currently maintains a variety of benefit plans and
programs, which are generally available to all NorthWestern team members,
including executive officers, such as the 401(k) Retirement Plan under which a
team member may contribute up to 20% of his or her salary subject to the
Internal Revenue Service contribution limits (with NorthWestern matching up to 3
1/2% of the first 6% contributed by the team member), term life long-term
disability plan, and other general employee benefits such as emergency personal
leave and educational assistance. In May 2003 the Board of Directors terminated
the NorthWestern Employee Stock Purchase Plan, the NorthWestern Team Member
Stock Purchase Plan, the Family Protector Plan (which provided supplemental life
insurance coverage), and the Supplemental Variable Investment Plan (a
non-qualified supplemental 401(k) plan available to the extent participation in
the 401(k) was limited by the Internal Revenue Code).
Salary Continuation Plan
NorthWestern has had two non-qualified salary continuation plan for
directors and selected management team members. Under the Supplemental Income
Security Plan (the "SISP") and the Montana Power Company Benefits Restoration
Plan for Senior Management Executives (the "BRP"), selected management team
members, and in the case of the SISP, non-employee directors were provided with
certain amounts of salary continuation in the event of death before or after
retirement or, in the alternative, certain supplemental retirement benefits in
lieu of any death benefits after age 65 (age 55 for the BRP). No active team
members are participants in the BRP. In May 2003 the Board of Directors amended
the SISP to permit vested participants the option of continuing the current
vested benefits level or taking a present value lump sum distribution, based
upon the death benefit, with a cap of $200,000 per participant, and a refund of
individual contributions to all non-vested participants. The BRP was amended to
permit participants the option of continuing in the Plan or receiving a present
value lump sum distribution. No new participants will be included in these
plans.
Director Compensation
Non-employee Directors annually receive 1,200 shares of common stock of
NorthWestern, are paid $2,500 each quarter for serving on the Board, and receive
an attendance fee of $4,000 for attendance at each regular or special meeting of
the Board. Directors are also paid $1,700 for each meeting of a committee on
which such director serves and $500 for each quarter during which they serve as
chairman of a committee of the Board. Directors receive one-half of the meeting
fee for telephonic conference board or committee meetings. In addition,
non-employee directors received stock options for 4,000 shares of common stock
in 2002. Directors who are also officers are not separately compensated for
services as a director, on NorthWestern's Board.
Directors may elect to defer receipt of their cash compensation as
directors until they cease to be directors. The deferred compensation may be
invested in (1) an account which earns interest atcomply with the same rate as accounts in
the team member savings plan or (2) a deferred compensation unit account in
which the deferred compensation is converted into deferred compensation units on
the basis that each unit is at the time of investment equal in value to the fair
market value of one share of NorthWestern's common stock, sometimes referred to
as "phantom stock units." Additional units based on the
24
dividends paid on NorthWestern's common stock are added to the director's
deferred compensation unit account. Following the director's retirement, the
value of the deferred compensation is paid in cash to the former director within
a period of five years.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of theexpectations and requirements for Board furnishes the
following report on executive compensation to the stockholders of NorthWestern.
Procedures and Policies
The Committee, which is comprised entirely of non-employee directors,
has overall responsibility to nominate persons to serve as executive officers ofservice publicly disclosed by NorthWestern and to review and to approve annual and long-term compensation
plans and awards for the membersprovide all of the information required to conduct an evaluation. Code of Conduct
Our Board adopted a Code of Conduct and Ethics (Code of Conduct) which it reviews annually. Our Code of Conduct embodies the standards that form our culture and sets forth expectations of conduct for the executive officers.
The Committee also reviewsall of our officers, directors, and recommendsemployees and those of our subsidiary companies, including all full- and part-time employees and certain persons that provide services on our behalf. Our Code of Conduct focuses on our corporate vision, mission and SERVICE values. You may review our Code of Conduct on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance. We intend to the full Boardpost on our website any benefit plans
for officers and team members. The Compensation Committee Charter is reviewed at
least annually.
In 2002, the Committee has engaged Towers Perrin, a compensation and
benefits consulting firm,amendments to, assess the current executive officer compensation
plans and employment protections for NorthWestern and to offer recommendations
that would support NorthWestern's short-term and long-term business strategy.
Towers Perrin representatives interviewed the membersor waivers from, our Code of the Board, compared the
compensation of NorthWestern's executive officers and directors to comparable
companies, and presented their findings to the Committee. The Board has
implemented various recommendations from the Towers Perrin analysis which are
designed to align stockholder and executive officer interests; to compensate
executives for improvement in NorthWestern performance; to focus on long-term
performance and the creation of stockholder value; and to attract and retain key
executives and other key team members.
The Committee has approved a compensation program which positions total
direct executive compensation (including base salary, annual incentives and
long-term incentives) at between the median and 75th percentile based on
benchmarking of comparable companies in the energy industry when performance is
consistent with that comparative group and which includes stock ownership
guidelines.Conduct. In addition, to utilizing external benchmarking asour Board adopted a guidepost, any
adjustments to base salary levels or incentive targets and paymentsseparate Code of incentives for executive officers are based on assessment of individual officer
performance and require Committee approval. Each officer minimally receives a
formal performance assessment and review on an annual basis; such assessment is
based on the achievement of specific individual and department goals and the
degree to which it is determined the officer has contributed to the achievement
of NorthWestern's overall goals.
Section 162(m) of the Internal Revenue code of 1986 generally disallows
a tax deduction to public companies for compensation over $1,000,000 paid to
their chief executive officer and the four other most highly compensated
executive officers unless certain tests are met. The Committee's general
objective is to design and administer NorthWestern's compensation programs in a
manner that will preserve the deductibility of compensation payments to
executive officers but also will consider such programs in light of the
importance of achieving NorthWestern's compensation objectives discussed above.
Base Salary
Base salary levels are reviewed annually and are generally targeted
within a range around the median of the comparative group with adjustments based
on individual officer performance and market data.
In determining Mr. Lewis' salary for 2002 as Chairman and Chief
Executive Officer, the Committee considered the recommendations of the Mercer
study, Mr. Lewis' individual performance, and his contributions to the long-term
success of the organization. The Committee also continued to utilize, throughout
2002, a formal chief executive officer evaluation process first initiated in
1997. In particular, the Committee considered Mr. Lewis' efforts in defining and
leading NorthWestern's strategic focus on the energy and communications
industries; building a common culture emphasizing initiative and customer
service; working toward a more consolidated entity to share support resources in
a cost-effective manner; leading NorthWestern's efforts toward a significant
growth in its natural gas and electric business through the successful
acquisition of The Montana Power Company's transmission and distribution
business; and leading efforts to raise capital to implement NorthWestern
strategic plans. Mr. Lewis' base annual salary had previously been established
at the median for the comparative group, and similar factors had previously been
used to determine the base annual salary of the other named executive officers
whose base salaries were established at or near the median for the comparative
group. During 2002, base salaries for Mr. Lewis and the named executives were
not increased or were increased very modestly.
25
As he became Chief Executive Officer in January 2003, Mr. Drook's
compensation included a base salary of $565,000. He also received a cash
payment, upon assumption of the duties in as Chief Executive Officer, of
$600,000 which must be repaid in full to NorthWestern should he serve less than
twelve months in that position, and for which $250,000 must be repaid to
NorthWestern should he serve less than twenty-four months in that position. In
addition, NorthWestern agreed to provide the use of the Company aircraft for a
period of twelve months for Mr. Drook to commute to the NorthWestern office from
his home.
Annual Incentive Compensation
The philosophy for all NorthWestern incentive compensation plans is to
provide rewards when financial objectives are achieved, and to provide reduced
or no benefits when the objectives are not achieved. These objectives are
designed to further NorthWestern goals and to increase stockholder value.
The NorthWestern Board has adopted an annual incentive plan, known as
the NorthWestern Performance Plan (the "Performance Plan"), which has been
broadened to include team members at many levels of NorthWestern. The purpose of
the Performance Plan is to motivate and reward outstanding performance by
NorthWestern team members in meeting short-term goals that support long-term
objectives important to NorthWestern's success. The Performance Plan defines
specific financial performance objectives for the business, the achievement of
which fund a "pool" of incentive dollars to be allocated to the participants.
The allocation of the "pool" (if any) to individual team members is determined
based on individual performance. On at least an annual basis, the eligible team
member's achievement is assessed against previously established individual
goals, and any available "pool" is allocated based on the individual's annual
appraisal and according to a performance assessment matrix including the
following levels: outstanding, exceeds expectations, meets expectations, needs
improvement, and unsatisfactory. The Committee determines incentive targets and
any awards to executive officers. For performance in 2002, awards for Mr. Hanson
and Mr. Jacobsen were discretionary awards approved by the Committee based on
the performance of NorthWestern Energy. No other awards were made to executive
officers in 2003, based on 2002 performance.
Long-Term Incentive Compensation
As a complement to NorthWestern's annual incentive plans, the Board has
determined that long-term incentive programs that tie executive compensation to
increases in stockholder value are important. The Board and the stockholders of
NorthWestern have previously adopted the NorthWestern Stock Option and Incentive
Plan (the "Plan") to assist in accomplishing this goal by strengthening the link
between compensation and the market value of NorthWestern's stock. The Plan is
intended to recognize the contributions made to NorthWestern by its team
members, to provide such persons with additional incentive to devote themselves
to the future success of NorthWestern, and to improve the ability of
NorthWestern to attract, retain and motivate individuals upon whom
NorthWestern's future growth and financial success depend, by providing such
persons with an opportunity to acquire or increase their proprietary interest in
NorthWestern through receipt of options to acquire NorthWestern's common stock.
Similarly, the Plan is intended as an additional incentive to directors who are
not team members of NorthWestern to serve on the Board and to devote themselves
to the future success of NorthWestern. Options granted under the Plan to team
members may be incentive stock options ("ISOs") within the meaning of Section
422(b) of the Internal Revenue Code, may be options not intended to be ISOs (or
"NQSOs"), or may be other types of long-term incentives, such as restricted
stock awards, stock appreciation rights, and phantom stock units (collectively,
"Options"). In 2002, executive officers received grants of ISOs and NQSOs.
Options granted to directors who are not team members of NorthWestern are NQSOs.
As he became Chief Executive Officer in January 2003, Mr. Drook received grants
of 233,333 shares of restricted stock, 61,224 ISOs, and 274,419 NSOs, all based
upon a per share price of $4.90 per share. For any shares acquired under these
grants, which vest in equal installments over a three year period, the shares
must be held for a period of one year after the restrictions are removed or the
options are exercised before they can be sold.
NorthWestern had formed a private equity investment company, structured
as a limited liability company, in which certain key executives and key team
members of NorthWestern Growth Corporation, which initiated strategic
investments for NorthWestern, were provided the opportunity to make personal
investments. No payments were made to participants in 2002, and the entity was
dissolved in March 2003.
The Board has established stock ownership guidelines for all executive
officers that require each officer to purchase and obtain a significant equity
ownership interest in NorthWestern within specified periods. The guidelines
require equity purchase and ownership levels of 100,000 sharesEthics for the Chief Executive Officer 50,000 shares forand Senior Financial Officers that applies to our principal executive officer, principal financial officer, and principal accounting officer or controller (or persons performing similar functions), which includes complaint procedures that specifically apply to this separate code. Our Board also annually reviews this separate code of ethics, which is available on our website at the President, and 25,000 shares for other
executive officers.
Randy G. Darcy, Chairman
26
Marilyn R. Seymann
Larry F. Ness
Lawrence J. Ramaekers
Long-Term Incentive Plans
Awards in Last Fiscal Year
None
Securities Authorized for Issuance under Equity Compensation Plans
The following table presents summary information about the Company's
equity compensation plans, including the employee stock ownership plan, stock
option and incentive plan andlocation noted above. We intend to post on our website any individual stock option arrangements not
arising under any plan. The table presents the following data on plans approved
by stockholders and plans not so approved, all asamendments to, or waivers from, this special code of ethics. Risk Oversight of the close of business on
December 31, 2002 (treating all employee stock purchase plan transactions
occurring on such date on an as-settled basis):
(i)Company
Our Audit Committee is primarily responsible for overseeing the
aggregate number of shares of the Company's common stock
subject to outstanding stock options, warrants and rights;
(ii) the weighted-average exercise price of those outstanding stock
options, warrants and rights; and
(iii) the number of shares that remain available for future option
grants, excluding the number of shares to be issued upon the
exercise of outstanding options, warrants and rights described
in (a) above.
Number of securities Number of securities remaining
to be issued upon Weighted-average available for future issuance
exercise of exercise price of under equity compensation
outstanding options, outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in column (a)) (1)
Plan category (a) (b) (c)
- ---------------------------- ------------------------------ ----------------------------- ------------------------------------------
Equity compensation plans
approved by security
holders
(1) Stock Option and
Incentive Plan.......... 1,538,165 $22.49 1,815,357
(2) Team Member Stock
Purchase Plan........... N/A(2) N/A(2) 954,469
Equity compensation plans
not approved by security
holders................. N/A N/A N/A
None....................... N/A N/A N/A
------------------------------ -----------------------------
Total...................... 1,538,165 2,769,826
============================== =============================
_________________________
(1) The Stock Option and Incentive Plan, as amended, provides that 12.5% of
the outstanding shares of common stock of the Company, as of January
1st of each year, are available for issuance under the plan.
(2) Under the Team Member Stock Purchase Plan, shares were acquired at the
time of investment by the participating team member, at the applicable
discount price. In May 2003, the Board of Directors terminated this
plan, effective June 1, 2003.
27
AUDIT COMMITTEE REPORT
The following report is submittedcompany’s risk management processes on behalf of the full Board by monitoring company processes for management’s identification and control of key strategic, operational, financial, regulatory, compliance, and security risks. The Audit Committee receives reports from management at least quarterly regarding the company’s assessment of risks. The HR Committee oversees risks in compensation plans, and the Governance Committee oversees risks in corporate governance and social responsibilities including environmental, health and safety matters. In addition, the Audit Committee reports regularly to the full Board, which also considers the company’s risk profile. The Audit Committee and the full Board focus on the most significant risks facing the company and review the corporate risk appetite in evaluating strategic alternatives and business development opportunities. While the Board oversees the company’s risk management, our CEO and executive Enterprise Risk Management Committee act to ensure that our enterprise risk management and business continuity programs (ERM) achieve their objectives. While management is responsible for the day-to-day risk management processes, we have structured our ERM reporting relationship through our Chief Audit and Compliance Officer who reports functionally to the Audit Committee. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
Transactions with Related Persons
Our Audit Committee has adopted a written Related Persons Transaction Policy. The policy requires that any related person transaction be reviewed and approved by the Audit Committee based on its consideration of all available relevant facts and circumstances. The Audit Committee approves a related person transaction only if it determines in good faith that such transaction is in, or is consistent with, the best interests of the company and its stockholders. No material related person transactions were identified during 2015.
Under the policy, a “related person” is an officer, director, director nominee, or five percent or more stockholder of the company, as well as any immediate family member of such individuals or any entity which is owned or controlled by any of such individuals; and a “related person transaction” is a transaction involving (1) the company, (2) a related person and (3) an aggregate annual amount in excess of $120,000.
The policy also provides ratification procedures for approval of transactions that have been commenced or consummated prior to any knowledge of the involvement of a related person and for the annual review of ongoing related person transactions to ensure that such transactions continue to remain in the best interests of the company and its stockholders. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Hedging and Pledging Our Securities
Our Insider Trading Policy prohibits our directors and employees from engaging in certain transactions involving our securities, including hedging or other monetization transactions and publicly traded options. The Insider Trading Policy also prohibits our directors and employees from pledging any of our securities as collateral for a loan, unless pre-cleared by the insider trading compliance officer. None of our directors or executive officers have pledged any of our securities as collateral for a loan. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Political Contributions Policy
As a public utility, we are subject to various laws and regulations at the federal, state, and local levels; and changes to these laws can affect our business, employees, communities and stockholders. Accordingly, we are committed to being an active and responsible corporate citizen.
We use our resources, through legally permissible participation in the political process, to advance matters of public policy that are consistent with our values, our legal obligations and our Code of Conduct. We also encourage our employees to be active in civic and community activities, including by participating in the political and democratic process.
We have a formal political contributions policy. We do not make (and our policy prohibits) corporate contributions to candidates for political office, political parties, or committees, or political committees organized for the advancement of political candidates, whether federal, state, or local.
State and local ballot initiatives and referenda on important policy issues do have the potential to impact our business and our stakeholders. Accordingly, the policy permits corporate contributions in connection with such matters, as well as lobbying efforts and contributions to trade and local associations. In addition, the policy allows individual employees to make personal contributions to political action committees. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Communications with Our Board
Communications by an interested party to our Board, Board Chair or independent directors, individually or as a group, should be addressed to our Corporate Secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108. The Corporate Secretary will forward any communication received to the intended recipient.
Audit Committee Report
The Audit Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2015. A summary of the Audit Committee’s oversight responsibilities can be found on page 56 of this proxy statement. A copy of the charter is available on NorthWestern’s website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 20022015, financial statements, the Audit Committee (a) reviewed and discussed the audited financial statements with management, (b)management. The Audit Committee has discussed with Deloitte & Touche LLP, NorthWestern's auditors, the matters required to be discussed by Statement on Auditing Standards No. 61, (c)as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee received the written disclosures and the letter from the auditorsDeloitte & Touche LLP (Deloitte), our independent registered public accounting firm, required by Independence
Standards Board Statement No. 1 and discussedapplicable requirements of the auditor's independencePCAOB regarding the independent accountant’s communications with the auditors,Audit Committee concerning independence; and (d) considered whether the provisionsAudit Committee has discussed with Deloitte the firm’s independence. The compatibility of non-audit services bywas considered with the auditors is compatible with maintaining the auditor'sauditor’s independence. The
other fees listed below consist of non-audit related tax fees.
Based on its review of the reviewconsolidated financial statements and discussions with and representations from management and Deloitte referred to herein,above, the Audit Committee recommended to the Board that the audited financial statements be included in theour Annual Report on Form 10-K for the last fiscal year for filingended December 31, 2015, filed with the Commission. The SEC.
Audit Committee has recommended,
Stephen P. Adik, Chair
Dana J. Dykhouse
Jan R. Horsfall
Denton Louis Peoples
Voting Procedures
Appointment of Proxy Holders
Our Board asks you to appoint our independent Board Chair, E. Linn Draper Jr., and our CEO, Robert C. Rowe, as your proxy holders to vote your shares at the Board has adopted, an Audit Charterannual meeting. You make this appointment by voting the proxy card provided to guide
the Committee. The Audit Charter is reviewed at least annually. The fees paid to
Deloitte in 2002,you or by category, were as follows:
Financial Information
Systems Design and
Audit Fees Implementation Fees All Other Fees
---------- ------------------- --------------
$3,930,391 $0 $680,471
Jerry W. Johnson, Chairman
Larry F. Ness
Bruce I. Smith
Lawrence J. Ramaekers
28
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of reports on Forms 3, 4 and 5 and any
amendments thereto furnished to NorthWestern pursuant to Section 16using one of the Securities Exchange Act of 1934, as amended, and written representations from
the executive officers and directors that no other reports were required,
NorthWestern believes that all of such reports were filed on a timely basis by
executive officers and directors during 2002, except that the following
transactions were not timely made on Form 4 for these non-employee director
transactions in May 2002: (a) non-qualified stock option grants of 4,000 shares
each, at an exercise price of $20.30 per share, to Randy Darcy, Gary Drook,
Jerry Johnson, Larry Ness, Marilyn Seymann, and Bruce Smith, and (b) phantom
stock unit plan payouts of $10,418.64 each for 507 units to Jerry Johnson, Larry
Ness, and Bruce Smith.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gary G. Drook became the Company's new chief executive officer on
January 5, 2003. Mr. Drook does not have a written employment agreement with the
Company. Mr. Drook received a cash payment of $600,000 on his date of hire. He
will be required to repay all of that amount if his employment with us
terminates before January 5, 2004 and 50% if his employment terminates before
January 5, 2005. Mr. Drook also received an initial option to purchase 233,333
shares of the Company's common stock at $4.90 per share. The option vests in
three equal annual installmentsvoting methods described on the anniversary of his hire date. Mr. Drook's
base salary in 2003next page. If appointed by you, the proxy holders will be $565,000 per year and his target annual bonus is
$423,750, or 75% of his base salary. His bonus will be determined by the Board.
Mr. Drook also received long-term incentive compensation in 2003 consisting of
additional options to purchase up to 339,000vote your shares of common stock at $4.90 per
share. These options also vest in three equal annual installmentsas you direct on the anniversary of his hire date. The Company believes that Mr. Drook's cash
compensationmatters described in 2003this proxy statement. If you sign and date your proxy card, but do not provide direction, they will be approximately $988,750. As part of his compensation
arrangements, Mr. Drookvote your shares as recommended by our Board.
Management is
also entitled to use aircraft owned by us to commute
to and from the Company's corporate offices in Sioux Falls, South Dakota and his
home in Florida. The Company anticipates that he will use the aircraft
approximately 26 times per year, at an annual cost to us of approximately
$450,000. The approximate cost to the company of Mr. Drook's usage of the
aircraft as of April 15, 2003 was $115,000. The cost to us related to Mr.
Drook's use of the Company's aircraft for commuting is treated as income to him.
The Company has agreed to provide Mr. Drook with a tax gross up payment for all
income related to personal aircraft usage. Mr. Drook is also eligible to
participate in the Company's health, welfare and retirement programs and
relocation assistance.
PERFORMANCE GRAPH
The following Stock Price Performance Graph compares the cumulative
total return* on NorthWestern's common stock ("NOR"); the Edison Electric
Institute (EEI) Index of Investor-Owned Electrics; and the S&P Small Cap 600
Stock Index for a five-year period.
--------------------------------------------------------------------
NOR EEI Electric S&P Small Cap
600
--------------------------------------------------------------------
Base 12/31/97 $100.00 $100.00 $100.00
--------------------------------------------------------------------
1998 119.84 113.89 98.69
--------------------------------------------------------------------
1999 104.13 92.71 110.94
--------------------------------------------------------------------
2000 114.98 137.18 124.03
--------------------------------------------------------------------
2001 110.43 125.12 132.14
--------------------------------------------------------------------
2002 29.31 106.65 112.81
--------------------------------------------------------------------
*Cumulative total return assumes quarterly reinvestment of dividends.
OTHER MATTERS
The management does not
knowaware of any
mattermatters to be brought before the
Meeting,annual meeting other than the matters described in the
Noticenotice of
Annual Meetingannual meeting accompanying this
Proxy Statement.proxy statement. The persons named in the form of proxy solicited by
theour Board will vote all proxies
whichthat have been properly executed, and if any matters not set forth in the
Noticenotice of
Annual Meetingannual meeting are properly brought before the meeting, such persons will vote thereon in accordance with their best judgment.
29
BY ORDER OF THE BOARD OF DIRECTORS
Alan D. Dietrich
Corporate Secretary
NorthWestern Corporation
July ___, 2003
PLEASE USE ONE OF THE THREE METHODS TO VOTE YOUR SHARES SO THAT YOUR STOCK MAY
BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
MANAGEMENT WILL PROVIDE TO EACH STOCKHOLDER WHOSE PROXY IS SOLICITED FOR THE
2003 ANNUAL MEETING, UPON WRITTEN REQUEST AND WITHOUT CHARGE, A COPY OF
NORTHWESTERN'S 2002 ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. REQUESTS SHOULD BE DIRECTED TO ALAN D. DIETRICH, VICE
PRESIDENT - LEGAL ADMINISTRATION AND CORPORATE SECRETARY, NORTHWESTERN
CORPORATION, 125 DAKOTA AVE. S., SIOUX FALLS, SOUTH DAKOTA 57104.
30
EXHIBIT A
NORTHWESTERN CORPORATION
PROPOSED RESTATED CERTIFICATE OF INCORPORATION
NorthWestern Corporation (the "Corporation"), a corporation organized Record Date and existing under the General Corporation LawVoting
All stockholders of record as of the Stateclose of Delaware (the "GCL"),
does hereby certify as follows:
o The present name ofbusiness on the Corporation is NorthWestern
Corporation. The name under which the Corporation was
originally incorporated was Northwestern Public Service
Company.
o The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware
on November 27, 1923.
o This Amended and Restated Certificate of Incorporation, which
further amends and restates the certificate of incorporation
of the Corporation as heretofore amended and restated, was
duly adopted in accordance with Sections 242 and 245 of the
GCL.
o The Certificate of Incorporation of the Corporation, as
heretofore amended and restated, is hereby amended and
restated so as to read in its entirety as follows:
ARTICLE 1
NAME
1.1 The name of the Corporation is Northwestern Corporation (the "Corporation").
ARTICLE 2
ADDRESS AND AGENT
2.1 The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The name of its registered agent at that address is The Corporation Trust
Company.
ARTICLE 3
PURPOSE
3.1 The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware (the "GCL").
ARTICLE 4
STOCK
1
4.1 Authorized Capital Stock. The total number of shares of stock which
the Corporation shall have authority to issue is 200,000,000 shares of common
stock, par value of $.001 per share (the "Common Stock"), and 50,000,000 shares
of preferred stock, par value of $.001 per share (the "Preferred Stock").
4.2 Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of the Common Stockrecord date, February 22, 2016, are as
follows:
(a) Dividends. Subject to the terms of any outstanding series of
Preferred Stock and any other provisions of this Amended and Restated
Certificate of Incorporation, as it may be amended from time to time (the
"Certificate of Incorporation"), holders of shares of Common Stock shall be entitled to receive such dividendsnotice of and other distributionsto vote, in cash, stockperson or propertyby proxy, at the annual meeting or any postponement or adjournment of the Corporation when, as and if declared thereon byannual meeting. If you owned shares of our common stock at the Boardclose of Directors from time to time out of assets or funds ofbusiness on the Corporation legally
available therefor.
(b) Liquidation, Dissolution, Winding Up. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation resulting in any distribution of its assets to its stockholders,
subject to the terms of any outstanding series of Preferred Stock, the holders
of the Common Stock shall be entitled to receive pro rata the assets of the
Company available for distribution to its stockholders.
(c) Voting. Except as otherwise required by law and subject to
the terms of any outstanding series of Preferred Stock, each outstanding share
of Common Stock shall berecord date, you are entitled to one vote per share upon each matter presented at the annual meeting. The company does not have any other outstanding class of voting stock. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e., in “street name”) will need to obtain a proxy
|
|
Voting Procedures and General Information |
from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting.
|
| |
: | Voting on the Internet. You may vote by proxy on the internet up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting. The website for internet voting is www.proxyvote.com. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote on the internet, you can request electronic delivery of future proxy materials. |
| |
( | Voting by Telephone. You may vote by proxy by telephone up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting by using the toll-free number listed on your proxy card or voting instruction form. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded. |
| |
+ | Voting by Mail.Mark, sign and date your proxy card or voting instruction form and return it in the postage-paid envelope provided. Your proxy card or voting instruction form must be received far enough in advance of the annual meeting to allow sufficient time for processing. |
| |
? | Voting in Person at the Annual Meeting. If you attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in street name by a broker, bank, or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the record holder of the shares authorizing you to vote at the annual meeting. Submitting your vote by proxy will not affect your right to attend the annual meeting and to vote in person. |
| |
r | Revoking Your Voting Instructions to Your Proxy Holders.If you are a record holder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by again voting by one of the methods described above or by attending the annual meeting and voting in person. You also may revoke your proxy by delivering a notice of revocation to our corporate secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108, prior to the vote at the annual meeting. If your shares are held in street name, you must contact your broker, bank, or other nominee to revoke your proxy. |
Quorum
At the close of business on all matters presented
to stockholders for a vote.
4.3 Preferred Stock. The Board of Directors is expressly authorized to
provide for the issuance of all or anyrecord date, there were [ ] shares of NorthWestern Corporation common stock outstanding and entitled to vote at the Preferred Stock inannual meeting. Each outstanding share is entitled to one or
more series, and to fix for each such series the number of shares comprising
such series, the designation thereof and such voting powers, full or limited, or
no voting powers, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the issuance of such series and as may be
permitted by the GCL.
4.4 Changes to Authorized Capital Stock. The authorized number of
sharesvote.
A quorum, which is a majority of the Common Stock or Preferred Stock mayoutstanding shares as of the record date, is necessary to hold a valid annual meeting. A quorum will be increased or decreased bypresent at the affirmative vote ofannual meeting if the holders of a majority in voting power of the shares of our common stock outstanding and entitled to vote on the record date are present in person or represented by proxy. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned to solicit additional proxies.
Broker Non-Votes
Under the rules of the New York Stock Exchange (NYSE), certain stockholder nominees (such as brokers) have the discretion to vote shares on routine matters, such as the ratification of the appointment of our independent registered public accounting firm, when they do not receive voting instructions from the beneficial owner. They do not have authority to vote on non-routine matters – such as the election of directors, the advisory vote to approve named executive officer compensation, and the amendment of the director removal provisions of our Certificate of Incorporation – unless they receive instruction from the beneficial owner.
A “broker non-vote” occurs when your broker submits a proxy for your shares but does not indicate a vote for a particular proposal because the broker does not have authority to vote on that proposal and has not received voting instructions from you. Broker non-votes are not counted as votes for or against the proposal in question or as abstentions, and are not counted to determine the number of votes present for the particular proposal. For certain proposals, however, a broker non-vote will have the effect of a vote against the proposal.
|
|
Voting Procedures and General Information |
Under the rules of the NYSE, if your broker holds shares in your name and delivers this proxy statement to you, the broker is entitled to vote your shares on Proposal 2 — Ratification of Independent Registered Public Accounting Firm even if the broker does not receive voting instructions from you. Without your instructions, the broker is not entitled to vote your shares on Proposal 1 — Election of Directors, Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation, or Proposal 4 — Amendment of Certificate of Incorporation. We encourage you to provide instructions to your broker, bank, or other nominee. This ensures your shares will be voted at the annual meeting.
Required Vote and Method of Counting
The required vote and method of counting votes for the various business matters to be considered at the annual meeting are described in the table below. If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” each of the nominees for director, “FOR” ratification of Deloitte & Touche LLP as our independent registered public accounting firm, “FOR” the advisory vote to approve named executive officer compensation, and in accordance with the recommendations of our Board on any other matters properly brought before the annual meeting for a vote.
|
| | | | |
Item of Business | Board Recommendation | Voting Approval Standard | Effect of Abstention | Effect of Broker Non-Vote |
Proposal 1:
Election of Directors | FOR election of each director nominee | If a quorum exists, the nominee with most “FOR” votes is elected. If a Nominee receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the Nominee must submit resignation for consideration by the Governance and Innovation Committee and final Board decision. | No effect | No effect |
Proposal 2:
Ratification of Appointment of Independent Registered Public Accounting Firm | FOR | If a quorum exists, the majority of votes present in person or represented by proxy and entitled to vote. | Vote against | Not applicable; broker may vote shares without instruction |
Proposal 3:
Advisory Vote to Approve Named Executive Officer Compensation | FOR | If a quorum exists, the majority of votes present in person or represented by proxy and entitled to vote. This advisory vote is not binding on the Board, but the Board will consider the vote results when making future executive compensation decisions. | Vote against | No effect |
Proposal 4:
Approve Amendment to Certificate of Incorporation | FOR | Majority of shares outstanding and entitled to vote. | Vote against | Vote against |
Method and Cost of Soliciting and Tabulating Votes
The Board is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at our annual meeting. NorthWestern will pay the cost of the solicitation, which will be made primarily by the use of mail and the internet. Proxies also may be solicited in person or by telephone, facsimile, or similar means by our directors, officers, or employees without additional compensation.
We will, on request, reimburse stockholders who are brokers, banks, or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record. Broadridge Financial Solutions, Inc., will be the proxy tabulator, and a representative from NorthWestern will act as the Inspector of Election.
|
|
Voting Procedures and General Information |
Electronic Access to Proxy Statement and Annual Report
The proxy statement, annual report, voting card, and voting instructions are available on the internet at www.proxyvote.com where you can also cast your vote and request to receive future proxy materials in printed form by mail or electronically by email. These materials will be available for one year following the annual meeting. You will need the control number provided on your notice to access the electronic materials.
General Information
Attending the Annual Meeting in Person or by Webcast
Only stockholders of record or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. You may be asked to provide photo identification, such as a driver’s license.
|
| | |
No cameras, recording equipment, electronic devices, large bags, briefcases, or packages will be permitted at the annual meeting. No banners, signs, firearms, or weapons will be allowed in the meeting room. |
We reserve the right to inspect all items entering the meeting room. The annual meeting will be held at the NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana, as shown on the map to the right. The annual meeting will be webcast (audio and slides) simultaneously with the live meeting. You may access the webcast from our website at northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A webcast replay will be available at the same location on our website through May 20, 2016. | | |
| |
|
Householding; Receipt of Multiple Notices
Under the rules of the Securities and Exchange Commission (SEC), a single Notice of Internet Availability of Proxy Materials or set of annual reports and proxy statements may be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing expenses. In accordance with a notice sent to certain stockholders who shared a single address, only one annual report and proxy statement were sent to that address unless any stockholder at that address requested that multiple sets of documents be sent. However, if any stockholder who agreed to householding wishes to receive a separate annual report or proxy statement for 2016 or in the future, he or she may telephone toll-free (800) 542-1061 or write to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717, and the company will deliver promptly upon such written or oral request a separate Notice of Internet Availability of Proxy Materials or annual report or proxy statement. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks, brokers, or other nominees, if they are beneficial holders, or by contacting Broadridge at the address set forth above, if they are record holders.
|
|
Voting Procedures and General Information |
Available Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. These filings are available through a website maintained by a third-party and accessible through our company website at www.northwesternenergy.com under Our Company / Investor Relations / SEC Filings.
Our public filings also are available to the public from document retrieval services and the website maintained by the SEC at www.sec.gov. You also may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC: Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549.
Please call the SEC at (800) 732-0330 for further information on the public reference room. You also may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street NE, Room 1580, Washington, DC 20549, at prescribed rates.
Future Stockholder Proposals
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement
To be considered for inclusion in the proxy statement for our annual meeting to be held in 2017, stockholder proposals submitted under Exchange Act Rule 14a-8 must be received by the corporate secretary of NorthWestern Corporation not later than November 7, 2016. Such proposal must comply with all applicable SEC requirements that a stockholder must meet in order to have a stockholder proposal included in the company’s proxy statement.
Other Stockholder Proposals for Presentation at the 2017 Annual Stockholders’ Meeting
For nominations of persons for election as a director or for any proposal that is not submitted for inclusion in next year’s proxy statement, but is instead sought to be presented directly from the floor of the 2017 Annual Stockholders’ Meeting, the company’s bylaws require that timely notice must be given to the corporate secretary. To be timely, the notice must be received by the corporate secretary of NorthWestern Corporation between December 21, 2016, and January 20, 2017.
Stockholder proposals should be delivered or mailed to and received by the Company in accordance with the dates set forth above and addressed to:
Corporate Secretary
NorthWestern Corporation
3010 West 69th Street
Sioux Falls, South Dakota 57108
To be in proper written form, a stockholder’s notice for both annual and special meetings must set forth:
(1) as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, and business and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock of the Corporation entitledcompany that are owned beneficially or of record by the person, (d) any other information relating to vote irrespectivethe person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of any class vote
providedproxies for inelection of directors pursuant to Section 242(b)(2)14 of the GCL (or any successor provision
thereto).
ARTICLE 5
DIRECTORS
5.1 NumberSecurities and Exchange Act of Directors. The number1934, as amended (Exchange Act) and the rules and regulations promulgated thereunder, and (e) the written consent of Directors shall beeach proposed nominee to being named as determined
by the Board of Directors from time to time. However, no decrease in the number
of Directors shall have the effect of shortening the term of any incumbent
Director.
5.2 Election, Classesa nominee and Terms of Directors. The Board of Directors
shall be and is divided into three classes, Class I, Class II and Class III,
which shall be as nearly equal in number as possible. Each Director shall serve
for a term ending on the date of the third (3rd) annual meeting of stockholders
following the annual meeting of stockholders at which such Director was elected,
or until such Director's successor is elected and qualified or until such
Director's death, resignation or removal. Any Director who is also an executive
officer of the Corporation shall, immediately upon ceasing to be an executive
officer of the Corporation for any reason whatsoever, be disqualified from
continuing to serve as a director if elected;
(2) as to any other business that the stockholder proposes to bring before the meeting, (a) a brief description of the business desired to be brought before the meeting, (b) the text of the proposal or business (including the text of any resolutions proposed for consideration, and, such Director's term of office as a
director shall thereupon automatically expire. Inin the event that such business includes a proposal to amend the bylaws of the company, the language of
|
|
Voting Procedures and General Information |
the proposed amendment), (c) the reasons for conducting such business at the meeting, and (d) any increase or
decreasematerial interest of such stockholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and
(3) as to the stockholder giving this notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (a) the name and record address of such stockholder and any such beneficial owner, (b) the class or series and number of
Directors, (i) each Director then serving as such
shall nevertheless continue as a Directorshares of capital stock of the
classcompany that are owned beneficially or of
record by such stockholder and beneficial owner, (c) a description of all arrangements or understandings between such stockholder and any such beneficial owner and each proposed nominee and any other persons (including their names) pursuant to which
the nomination(s) are to be made by such
Directorstockholder, (d) a representation that such stockholder is a
member until the expirationstockholder of
the current term, or such Director's prior
death, resignation, or removal, and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be
2
apportioned by the Board of Directors among the three classes of Directors so as
to maintain such classes as nearly equal in number as possible.
5.3 Removal of Directors. Any Director or the entire Board of Directors
may be removed, but only for cause, by the affirmative vote of the holders of a
majority in voting power of the shares thenrecord entitled to vote at an electionsuch meeting and intends to appear in person or by proxy at the meeting to nominate the persons and/or conduct the business being proposed as described in the notice, and (e) a representation of Directors.
5.4 Vacancies. Except as otherwise provided in this Certificate of
Incorporation,whether such stockholder or any vacancy, whether arising through death, resignation, removalsuch beneficial owner intends or disqualificationis part of a Director, and any newly created directorship resultinggroup which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (ii) otherwise to solicit proxies from an increasestockholders in the numbersupport of Directors,such proposal or nomination. The foregoing notice requirements shall be filled onlydeemed satisfied by a majority
votestockholder with respect to an annual meeting if the stockholder has notified the company of his or her intention to present a proposal at such annual meeting in compliance with Regulation 14A (or any successor thereof) promulgated under the remaining Directors of all classes though less thanExchange Act and such stockholder’s proposal has been included in a quorum ofproxy statement that has been prepared by the Board of Directors. A Director so electedcompany to fill a vacancy or newly created
directorship shall servesolicit proxies for the remainder of the then present term of office of
the classsuch annual meeting. The company may require any proposed nominee to which such Director was elected.
5.5 Preferred Stock Directors. Notwithstanding the foregoing provisions
of this Article V, whenever the holders of any one or more series of Preferred
Stock shall have the right, voting separately as a series or separately as a
class with one or morefurnish such other series,information as it may reasonably require to elect Directors at an annual or
special meeting or stockholders,determine the election, term of office, removal, filling
of vacancies and other featureseligibility of such directorships shall be governed by the
terms of this Certificate of Incorporation (including any certificate of
designations relatingproposed nominee to any series of Preferred Stock) applicable thereto, and
such Directors so elected shall not be divided into classes pursuant to Section
5.2 hereof unless expressly provided by such terms.
ARTICLE 6
STOCKHOLDERS
6.1 Special Meetings. Special meetings of the stockholders may be
called by the Board of Directors, or any committee of the Board of Directors
which has been duly designated by the Board of Directors and whose powers and
authority,serve as expressly provided in a resolution of the Board of Directors,
include the power to call such meetings, the Chairman of the Board of Directors,
the Chief Executive Officer or the President, whenever any such person deems it
necessary.
6.2 Action in Lieu of Meetings. Any action required or permitted to be
taken by the stockholders must be effected at an annual or special meeting of
stockholders and may not be effected by any consent in writing of such
stockholders.
ARTICLE 7
LIABILITY AND INDEMNITY
7.1 Limitation of Liability of Directors. No director shall be
personally liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
such elimination or limitation of liability is not permitted under the GCL, as
the same exists or may hereafter be amended. Any repeal or modification of this
Section of this Certificate of Incorporation by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time ofcompany. Assistance
If you need assistance with voting your proxy or have questions regarding our annual meeting, please contact:
|
| | |
Travis Meyer Director - Investor Relations and Business Development (605) 978-2945 | or | Emily Larkin Assistant Corporate Secretary (605) 978-2871 |
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such
repealinformation or
modification with respect
to actsrepresentations must not be relied upon as having been authorized by us or
omissions occurring prior to such repeal or modification.
7.2 Right to Indemnification. To the fullest extent permitted by law,
the Corporation shall indemnify and hold harmless any
person who was or is made
or is threatened to be made a party or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that such
person is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans (any such
person, a "Section 7.2 Indemnitee"),
3
against all liabilities, losses, expenses (including attorney's fees),
judgments, fines and amounts paid in settlement ("expenses") actually and
reasonably incurred by such person in connection with such proceeding; provided,
however,other person. You should not assume that the Corporationinformation contained in this proxy statement is accurate as of any date other than the date of this proxy statement, and the mailing of this proxy statement to stockholders shall only be required to indemnify a person in
connection with a proceeding initiated by such person if the proceeding was
authorized by the Board of Directors.
7.3 Authorized Indemnification. The Corporation may indemnify and hold
harmlessnot create any person who is not a Section 7.2 Indemnitee and was or is made or is
threatened to be made a party or is otherwise involved in any proceeding by
reason of the fact that such person is or was an employee or agent of the
Corporation or is or was serving at the request of the Corporation as an
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans,implication to the extentcontrary.
Proxy Statement Glossary
The list below defines the various terms, abbreviations, and with such scopeacronyms used in this proxy statement.
|
| |
2008 Severance Plan | NorthWestern Corporation 2008 Key Employee Severance Plan, effective Oct. 1, 2008 |
AGA | American Gas Association |
Board | Board of Directors of NorthWestern Corporation |
CD&A | Compensation Discussion and Analysis |
CEO | President and Chief Executive Officer |
| Amended and effect as
authorized from time to time by the Board of Directors.
7.4 Prepayment of Expenses. The Corporation shall pay the expenses
incurred by a Section 7.2 Indemnitee in defending any proceeding in advance of
its final disposition, provided that the payment of expenses in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by such person to repay all amounts advanced if it should be
ultimately determined that such person is not entitled to be indemnified under
this Article or otherwise. The Corporation may pay the expenses incurred by any
other person in defending any proceeding in advance of its final disposition
upon such terms and conditions as the Board of Directors deems appropriate.
7.5 Repeal or Modification. Any repeal or modification of the
provisions of this Article or applicable law shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring before the time of such repeal or modification regardless of whether
the proceeding is brought or threatened before or after the time of such repeal
or modification.
7.6 Non-Exclusivity of Rights. The right to indemnification and
prepayment of expenses conferred on any person by this Article shall not be
exclusive of any other rights such person may have or acquire under any other
bylaws or by law, agreement, vote of stockholders or disinterested directors or
otherwise.
7.7 Survival of Rights. The right to indemnification and prepayment of
expenses conferred on any person by this Article shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
7.8 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or non-profit entity, including service with
respect to employee benefit plans, against any liability or expenses incurred by
such person in connection with a proceeding, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article or by law.
ARTICLE 8
COMPROMISES WITH CREDITORS
8.1 Compromises with Creditors. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof, or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors
4
or class of creditors, and/or on all the stockholders or class of stockholders,
of this Corporation, as the case may be, and also on this Corporation.
ARTICLE 9
BY LAWS AND CERTIFICATE OF INCORPORATION
9.1 Creation, Amendment and Repeal of Bylaws. In furtherance and not in
limitation of the powers conferred upon it by the laws of the State of Delaware,
the Board of Directors shall have the power to make, alter, amend or repeal the
Bylaws of the Corporation at any meeting of the Board of Directors (or by action
in lieu of meeting). The Corporation's Bylaws also may be altered, amended or
repealed by the affirmative vote of the holders of at least a majority in voting
power of the shares entitled to vote at an election of directors at any meeting
of the stockholders, provided that notice of such proposed alteration, amendment
or repeal shall have been included in any required notice of such meeting (or
such notice shall have been waived).
5
MPORTANT:
VOTE YOUR SHARES OVER THE INTERNET, BY PHONE, OR BY SIGNING AND
RETURNING THE ENCLOSED CARD PROMPTLY
1
NORTHWESTERN CORPORATION
Annual Meeting of Stockholders
Wednesday, August 26, 2003
2:00 p.m., Central Daylight Time
Sioux Falls Convention Center
1201 N. West Avenue
Sioux Falls, South Dakota 57106
NorthWestern Corporation
125 S. Dakota Avenue
Sioux Falls, South Dakota 57104 Proxy
- ------------------------------------------------------
This Proxy is solicited by the Board of Directors for use at the Annual Meeting
on August 26, 2003.
The shares of common stock you hold in your account as of record on June 27,
2003, will be voted as you specify.
If no choice is specified, the Proxy will be voted "FOR" items 1, 2 and 3.
By signing the Proxy, you revoke all prior Proxies and appoint Gary G. Drook and
Marilyn R. Seymann, and each of them, with full power of substitution, to vote
your shares on the matters shown on the reverse side and any other matters which
may come before the Annual Meeting and all adjournments.
SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
1
Company Number:
There are three ways to vote your Proxy. Control Number:
VOTE BY INTERNET
http://www.northwestern.com/proxyvote
Go to the Web site address listed above to vote your Proxy 24 hours a day, 7
days a week. You will be prompted to enter the 10 digit control number, 3 digit
company number and 10 digit account number, which are located in the upper
right-hand corner of this card. Then follow the simple online instructions.
VOTE BY PHONE
1-800-240-6326
Use any touch-tone telephone to vote your Proxy 24 hours a day, 7 days a week.
Have your Proxy Card in hand when you call. You will be prompted to enter the
company number and control number, which are located in the upper right-hand
corner of this card. Do not enter the three leading zeros of the control number.
Then follow the simple instructions given over the phone.
Note, if voting by Internet or phone: Your Internet or phone vote authorizes the
Named Proxies to vote your shares in the same manner as if you marked, signed
and returned your Proxy Card. The Internet and phone voting facilities will
close at 5:00 p.m., Central time zone, on August 25, 2003.
VOTE BY MAIL
Postage-paid envelope provided
Mark, sign and date your Proxy Card and return it in the postage-paid envelope
provided. If you vote by Internet or phone, do not return your Proxy Card in the
mail.
If you vote by Internet or Phone, please do not mail your Proxy Card.
PLEASE DETACH PROXY CARD HERE
(Mark only one box below)
Control Number 1234567
Shares
1. Adoption of Restated Certificate of Incorporation of NorthWestern CorporationCFO | Vice President and Chief Financial Officer | COBRA | Consolidated Omnibus Budget Reconciliation Act | Code of Conduct | Code of Conduct and Ethics | Company | NorthWestern Corporation d/b/a NorthWestern Energy | Deloitte | Deloitte & Touche LLP | Director Deferred Plan | NorthWestern Corporation 2005 Deferred Compensation Plan for Non-Employee Directors | Equity Compensation Plan | NorthWestern Corporation Amended and Restated Equity Compensation Plan (f/k/a NorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan) | EPS | Earnings per share | ERM | Enterprise Risk Management and Business Continuity Programs | ERRP | Executive Retention / Retirement Program | Exchange Act | Securities and Exchange Act of 1934, as amended | Executive Officer | The Named Executive Officers and other executives responsible for company policy, strategy and operations. For 2015, there were nine executive officers serving on ourexecutive team. | Governance Committee | Governance and Innovation Committee | HR Committee | Human Resources Committee | LTIP | Long-Term Incentive Program | NACD | National Association of Corporate Directors | Named Executive Officer | The CEO, CFO, and the three most highly compensated officers, other than the CEO andCFO, who were serving as executive officers at the end of 2015. Our named executive officers for 2015 are identified in the form
attached as Exhibit ACompensation Discussion and Analysis section of this Proxy Statement. | NorthWestern | NorthWestern Corporation d/b/a NorthWestern Energy | NYSE | New York Stock Exchange | Officer Deferred Plan | NorthWestern Corporation 2009 Officer Deferred Compensation Plan | OSHA | Occupational Safety and Health Administration | Our | NorthWestern Corporation d/b/a NorthWestern Energy | PCAOB | Public Company Accounting Oversight Board | Record Date | February 22, 2016 | ROAE | Return on average equity | SAIDI | System Average Interruption Duration Index | SEC | Securities and Exchange Commission | TSR | Total stockholder return | Us | NorthWestern Corporation d/b/a NorthWestern Energy | We | NorthWestern Corporation d/b/a NorthWestern Energy |
| | | | | | | Montana Operational Support Office 11 East Park Street Butte, Montana 59701 (406) 497-1000 | | South Dakota / Nebraska Operational Support Office 600 Market Street West Huron, South Dakota 57350 (605) 353-7478 | | Corporate Support Office 3010 West 69th Street Sioux Falls, South Dakota 57108 (605) 978-2900 | | | NorthWesternEnergy.com | | |
VOTING CARD [Front Side] | | | NORTHWESTERN CORPORATION 3010 W. 69TH STREET SIOUX FALLS, SD 57108 | VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy statement. __card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via email or the Internet. To sign up for electronic delivery, please follow the VOTE BY INTERNET instructions above, and when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instruction prompts.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
| | | | TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLANK INK AS FOLLOWS: | | | | KEEP THIS PORTION FOR __ AGAINST
__ ABSTAIN
2. Election of Class III Directors
01 Marilyn R. Seymann __ FOR the nominees (except as marked below)
02 Lawrence J. Ramaekers
03 [Nominee] __ WITHHOLD AUTHORITY to vote for the
nominee
(Instruction: YOUR RECORDS | | | DETACH AND RETURN THIS PORTION ONLY | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
| | | | | | | | | | | | | | | | | | | | | | | | NORTHWESTERN CORPORATION | | | THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee, printnominee(s), mark “For All Except” and write the name(s) or number(s) of the nominee(s) on the line provided tobelow. | | | The Board of Directors recommends that you vote FOR the right. If this Proxy is executed in such a manner as not to withhold authority tofollowing nominees: | o | o | o | | | | | Vote on Directors 1. Election of Directors Nominees: | | | 01) Stephen P. Adik 02) Dorothy M. Bradley 03) E. Linn Draper Jr. 04) Dana J. Dykhouse | 05) Jan R. Horsfall 06) Julia L. Johnson 07) Robert C. Rowe | | | Vote on Proposals | | For | Against | Abstain | | The Board of Directors recommends that you vote forFOR Proposal 2: | | | | | 2. Ratification of the election of any
nominee, this Proxy shall be deemed to grant such authority.)
-------------------------------------------
3. Ratificationappointment of Deloitte & Touche LLP as the company’s independent auditor
__registered public accounting firm for 2016. | o | o | o | | The Board of Directors recommends that you vote FOR __ AGAINST
__ ABSTAIN
Proposal 3: | | | | | 3. Advisory vote on the compensation for our named executive officers. | o | o | o | | The Board of Directors recommends that you vote FOR Proposal 4: | | | | | 4. Approval of the amendment of the director removal provision of our Certificate of Incorporation. | o | o | o | | | | | | | The Board of Directors recommends that you vote FOR Proposal 5: | | | | 5. Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. | o | o | o | | Please sign exactly as name(s) appear(s) on this Proxy. Joint owners should each sign personally. Corporation Proxies should be signed by an authorized officer. When signing as executors, administrators, trustees, etc., give full title. | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date | | | | Signature (Joint Owners) | Date | | |
2
4. Upon such other matters as may come before said meeting or any adjournments
thereof, in the discretion of the Proxy holders.
This Proxy, when properly executed, will be
voted in the manner directed by the
undersigned stockholder(s). If no direction
is made, this Proxy will be voted
"FOR"adoption of the Restated Certificate of
Incorporation in item 1, "FOR" the nominees
named in item 2, and FOR ratification of
Deloitte & Touche LLP as independent audito
in item 3.
Date: ___________________________________
----------------------------------------
Signature
----------------------------------------
Signature
Please sign exactly as name(s) appear on this
Proxy. Joint owners should each sign
personally. Corporation Proxies should be
signed by authorized officer. When signing as
executors, administrators, trustees, etc.,
give full title.
Address Change? Mark box and indicate changes above. __
3
VOTING CARD [Back Side]
| | | | | If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
PLEASE VOTE PROMPTLY BY INTERNET, PHONE OR MAIL.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report with 10-K Wrap are available at www.proxyvote.com. | | | | | | | | | NORTHWESTERN CORPORATION 3010 W. 69TH STREET, SIOUX FALLS, SD 57108
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 20, 2016
The undersigned hereby appoints E. Linn Draper Jr. and Robert C. Rowe, and each of them, with full power of substitution, attorneys and proxies to represent the undersigned at the 2016 Annual Meeting of Stockholders of NORTHWESTERN CORPORATION to be on held Wednesday, April 20, 2016, at 10:00 a.m. Mountain Daylight Time at the NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana, or at any adjournment or postponement thereof, with all power which the undersigned would possess if personally present, and to vote all shares of common stock of the Company which the undersigned may be entitled to vote at said Meeting as directed on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES NAMED IN ITEM 1; “FOR” RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM IN ITEM 2; “FOR” THE ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION IN ITEM 3; AND "FOR" THE APPROVAL OF THE AMENDMENT OF THE DIRECTOR REMOVAL PROVISION OF OUR CERTIFICATE OF INCORPORATION IN ITEM 4.
Continued and to be signed on the reverse side | |
|